How Does the Affordable Care Act Impact Your Taxes?
The Affordable Care Act (ACA) is a healthcare law that requires individuals to obtain a minimum level of health insurance. For those who make less than 400 percent more than the poverty line, government subsidies can help lower the cost of coverage. However, getting a subsidy or foregoing coverage could have many consequences for people on their 2014 tax returns.
There May Be a Fine Owed
Those who are not insured for at least nine months out of the year could have to pay a penalty for not being insured. In 2014, the fine is $95 or 1 percent of your yearly income above $40,000. The amount of the fine increases to as much as 2.5 percent of your income in 2016. This penalty will be subtracted by the IRS from your tax refund, say Miami-attorney Jerry Sokol.
What About Those Who Owe?
Anyone who owes money to the IRS at the end of the tax year may not have to pay the penalty. This is because the IRS is only authorized to deduct money from refunds. Otherwise, there is no penalty for failing to carry insurance or for failing to pay the fine according to Sokol.
Consequences for the Self-Employed
The ACA could be a double-edged sword for those who are self-employed. On one side, the healthcare premiums that self-employed individuals pay is considered to be a business expense that is fully deductible. However, those who underestimate their income for the year may need to repay some or all of the credit that they receive from the government in the current tax year.
Top Earners Could Pay Extra
Those who are married and file separately could face an additional .9 percent Medicare tax if they make over $125,000 a year. Single filers who make more than $200,000 a year and married couple filing jointly who make over $250,000 a year could also have to pay that tax. The good news is that the extra tax only applies on income above that threshold. Therefore, if you filed single and made $210,000, you would only owe .9 percent of $10,000 in additional tax.
The Affordable Care Act was designed to provide health coverage for as many uninsured people as possible. However, there are many tax implications that people need to think about before buying care through the government exchanges. When it comes to tax law, it is always a good idea to seek the advice of a tax expert for anyone who has questions about their return.