Archive | Taxes

Affordable Care Act Creates a Trickier Tax Season

The first year of the Affordable Care Act is in the books, and now comes a tricky tax-filing season for millions of Americans. The reason is that subsidy estimates may be inaccurate.

Millions of Americans who got subsidies under the law may find they are getting smaller-than-expected refunds or owe the IRS because credits they received to offset their insurance premiums were too large. As many as half of the roughly 6.8 million Americans who got subsidies may have to refund money to the government, based on one estimate by tax firm H&R Block Inc.

“The ACA is going to result in more confusion for existing clients and many taxpayers may well be very disappointed by getting less money and possibly even owing money,” said the president of a tax preparation firm.

The law’s requirement that most Americans carry health insurance means all filers must indicate on federal tax forms whether they had coverage last year and got tax credits to help pay for it.

To help avert problems, federal agencies including the IRS and the Centers for Medicare and Medicaid Services in January will reach out to consumers via phone calls, text messages and emails to tell them what to expect during the tax season. IRS officials are urging consumers to file electronically for a quicker return.

“As always, taxpayers are responsible for the accuracy of the information on the tax returns that they sign,” said an IRS spokesman. He added that “the vast majority of filers will have had coverage for the full year and will simply need to check a box to indicate that.”

The IRS also said it would allow taxpayers who have applied for—but not yet received—exemptions from the individual mandate to put “pending” on their forms so they don’t have to delay filing and obtaining their refund.

In addition to determining who has to pay a penalty, IRS has to determine the accuracy of tax credits. Because people often incorrectly estimate their future income, many Americans may have gotten subsidies—based on their own projections of 2014 income—that were too generous.

Tax credits for people eligible to use the health law’s exchanges would, on average, be too high by $208 if they were based on the applicants’ most recent tax returns, according to modeling by Vanderbilt University.

When the health law was passed, the amount of money that could be taken back from lower-income people who overestimated their incomes was capped at $250 for a single person and $400 for a household.

Those caps were significantly raised in an effort to fund Medicare physician payments in late 2010, to as much as $2,500 for a family at the upper end of the income-eligibility range. They were tweaked again in 2011 as part of a tax change to the health law’s 1099 reporting forms that required more people to reimburse over-payments in full.

 

*Modified from a WSJ.com article and other online data sources.

0

O-Care premiums to skyrocket

Health industry officials say ObamaCare-related premiums will double in some parts of the country, countering claims recently made by the administration. The expected rate hikes will be announced in the coming months, and the sticker shock would likely hamper ObamaCare insurance enrollment efforts in 2015.

The industry complaints come less than a week after Health and Human Services (HHS) Secretary Kathleen Sebelius sought to downplay concerns about rising premiums in the healthcare sector. She told lawmakers rates would increase in 2015 but grow more slowly than in the past. “The increases are far less significant than what they were prior to the Affordable Care Act,” the secretary said in testimony before the House Ways and Means Committee.

  • Her comment baffled insurance officials, who said it runs counter to the industry’s consensus about next year. “It’s pretty shortsighted because I think everybody knows that the way the exchange has rolled out … is going to lead to higher costs,” said one senior insurance executive who requested anonymity.

The insurance official, who hails from a populous swing state, said his company expects to triple its rates next year on the ObamaCare exchange. The hikes are expected to vary substantially by region, state and carrier.

Areas of the country with older, sicker or smaller populations are likely to be hit hardest, while others might not see substantial increases at all.

Much will depend on how firms are coping with the healthcare law’s raft of new fees and regulatory restrictions, according to another industry official.

  • Some insurers initially underpriced their policies to begin with, expecting to raise rates in the second year. But insurance officials are quick to emphasize that any spikes would be a consequence of delays and changes in ObamaCare’s rollout.

They point out that the administration, after a massive public outcry, eased their policies to allow people to keep their old health plans. That kept some healthy people in place, instead of making them jump into the new exchanges.

  • Perhaps most important, insurers have been disappointed that young people only make up about one-quarter of the enrollees in plans through the insurance exchanges, according to public figures that were released earlier this year. That ratio might change in the weeks ahead because the administration anticipates many more people in their 20s and 30s will sign up close to the March 31 enrollment deadline. Many insurers, however, don’t share that optimism

“We’re exasperated,” said the senior insurance official. “All of these major delays on very significant portions of the law are going to change what it’s going to cost.”

  • “My gut tells me that, for some people, these increases will be significant,” said Bill Hoagland, a former executive at Cigna and current senior vice president at the Bipartisan Policy Center. Hoagland said Sebelius was seeking to “soften up the American public” to the likelihood that premiums will rise, despite promises to the contrary.

Insurers will begin the process this spring by filing their rate proposals with state officials. Insurance commissioners will then release the rates sometime this summer, usually when they’re approved. Insurers could also leak their rates earlier as a political statement.

Jon Gruber, who also helped design the Affordable Care Act, said, “The bottom line is that we just don’t know. Premiums were rising 7 to 10 percent a year before the law. So the question is whether we will see a continuation of that sort of single digit increase, or whether it will be larger.”

In Iowa, rates are expected to rise 100 percent on the exchange and by double digits on the larger, employer-based market, according to a recent article in the Business Record.

*Modified from a Hill.com article

0

New ObamaCare fees coming in 2014

Here comes the ObamaCare tax bill. The cost of President Obama’s massive health-care law will hit Americans in 2014 as new taxes pile up on their insurance premiums and on their income-tax bills.

Most insurers aren’t advertising the ObamaCare taxes that are added on to premiums, opting instead to discretely pass them on to customers while quietly lobbying lawmakers for a break.

But one insurance company, Blue Cross Blue Shield of Alabama, laid bare the taxes on its bills with a separate line item for “Affordable Care Act Fees and Taxes.”

  • The new taxes on one customer’s bill added up to $23.14 a month, or $277.68 annually, according to Kaiser Health News. It boosted the monthly premium from $322.26 to $345.40 for that individual.
  • The new taxes and fees include a 2 percent levy on every health plan, which is expected to net about $8 billion for the government in 2014 and increase to $14.3 billion in 2018.
  • There’s also a $2 fee per policy that goes into a new medical-research trust fund called the Patient Centered Outcomes Research Institute.
  • Insurers pay a 3.5 percent user fee to sell medical plans on the HealthCare.gov Web site.

ObamaCare supporters argue that federal subsidies for many low-income Americans will not only cover the taxes, but pay a big chunk of the premiums.

But ObamaCare taxes don’t stop with health-plan premiums.

  • Americans also will pay hidden taxes, such as the 2.3 percent medical-device tax that will inflate the cost of items such as pacemakers, stents and prosthetic limbs.
  • Those with high out-of-pocket medical expenses also will get smaller income-tax deductions.
  • Americans are currently allowed to deduct expenses that exceed 7.5 percent of their annual income. The threshold jumps to 10 percent under ObamaCare, costing taxpayers about $15 billion over 10 years.

Then there’s the new Medicare tax.

  • Under ObamaCare, individual tax filers earning more than $200,000 and families earning more than $250,000 will pay an added 0.9 percent Medicare surtax on top of the existing 1.45 percent Medicare payroll tax.
  • They’ll also pay an extra 3.8 percent Medicare tax on unearned income, such as investment dividends, rental income and capital gains.

Modified from a NewYorkPost.com article

0

Millions Could Get Surprise Tax Bills Under ‘Obamacare’ If They Don’t Accurately Project Their Income

WASHINGTON — Millions of people who take advantage of government subsidies to help buy health insurance next year could get stung by surprise tax bills if they don’t accurately project their income.

  • Health care providers, advocates and tax experts say the vast majority of Americans know very little about the new health care law, let alone the kind of detailed information many will need to navigate its system of subsidies and penalties.
  • The Patient Protection and Affordable Care Act (PPACA) will offer subsidies — advanced premium tax credits (APTC) — to help people buy private health insurance on state-based exchanges, if they don’t already get coverage through their employers. The subsidies are based on income. The lower your income, the bigger the subsidy.
  • The vast majority of taxpayers won’t actually receive the subsidies. Instead, the money will be paid directly to insurance companies and consumers will get the benefit in reduced premiums.
  • But the government doesn’t know how much money you’re going to make next year. And when you apply for the APTC subsidy, this fall, it won’t even know how much you’re making this year. So, unless you tell the government otherwise, it will rely on the best information it has: your 2012 tax return, filed this spring.
  • What happens if you or your spouse gets a raise and your family income goes up in 2014? You could end up with a bigger subsidy than you are entitled to. If that happens, the law says you have to pay back at least part of the money when you file your tax return in the spring of 2015.  That could result in smaller tax refunds or surprise tax bills for millions of middle-income families.
  •  A draft of the application for insurance asks people to project their 2014 income if their current income is not steady or if they expect it to change. The application runs 15 pages for a three-person family, but nowhere does it warn people that they may have to repay part of the subsidy if their income increases.
  • The subsidies, which are technically tax credits because they are administered through the tax code, will help low- and middle-income families buy health insurance through the state-based exchanges.
  • The subsidies are available to families with incomes up to 400 percent of the poverty level. This year, four times the poverty level is about $62,000 for a two-person family. For a family of four, it’s $94,200.
  • If families get bigger subsidies than they are entitled to under the law, the amount they have to repay is capped, based on income and family size. If they get less than they qualify for under the law, the government will pay them the difference in the form of a tax refund.
  • “It’s potentially going to come as a shock to individuals who meet that criteria where their income hits a point where they owe money back,” said Rep. Charles Boustany, R-La., chairman of the House Ways and Means oversight subcommittee. “The fact is, with variations in income, people could end up owing money back and that will create consternation and problems for them.”

There are four thresholds for repaying the subsidies:

  1. A family of four making less than $47,000 would have to repay a maximum of $600.
  2. If the same family makes between $47,000 and $70,000, the amount they have to repay is capped at $1,500.
  3. If the same family makes between $70,000 and $94,200, the amount is capped at $2,500.
  4. Families making more than four times the poverty level have to repay the entire subsidy.

*Modified from a LifeHealthPro.com article

0

PPACA could price smokers out of health insurance

Millions of smokers could be priced out of health insurance because of tobacco penalties in the Patient Protection and Affordable Care Act (PPACA), according to experts who are just now teasing out the potential impact of a little-noted provision in the massive legislation.

  • PPACA — “Obamacare” to its detractors — allows health insurers to charge smokers buying individual policies up to 50 percent higher premiums starting next Jan. 1.
  • For a 55-year-old smoker, the penalty could reach nearly $4,250 a year. A 60-year-old could wind up paying nearly $5,100 on top of premiums.

Younger smokers could be charged lower penalties under rules proposed last fall by the Obama administration. But older smokers could face a heavy hit on their household budgets at a time in life when smoking-related illnesses tend to emerge.

Workers covered on the job would be able to avoid tobacco penalties by joining smoking cessation programs, because employer plans operate under different rules. But experts say that option is not guaranteed to smokers trying to purchase coverage individually.

Nearly one of every five U.S. adults smokes. That share is higher among lower-income people, who also are more likely to work in jobs that don’t come with health insurance and would therefore depend on the new federal health care law. Smoking increases the risk of developing heart disease, lung problems and cancer, contributing to nearly 450,000 deaths a year.

Insurers won’t be allowed to charge more under the overhaul for people who are overweight, or have a health condition like a bad back or a heart that skips beats — but they can charge more if a person smokes.

Starting next Jan. 1, the federal health care law will make it possible for people who can’t get coverage now to buy private policies, providing tax credits to keep the premiums affordable. Although the law prohibits insurance companies from turning away the sick, the penalties for smokers could have the same effect in many cases, keeping out potentially costly patients.

“We don’t want to create barriers for people to get health care coverage,” said California state Assemblyman Richard Pan, who is working on a law in his state that would limit insurers’ ability to charge smokers more. The federal law allows states to limit or change the smoking penalty.

“We want people who are smoking to get smoking cessation treatment,” added Pan, a pediatrician who represents the Sacramento area.

Obama administration officials declined to be interviewed for this article, but a former consumer protection regulator for the government is raising questions.

“If you are an insurer and there is a group of smokers you don’t want in your pool, the ones you really don’t want are the ones who have been smoking for 20 or 30 years,” said Karen Pollitz, an expert on individual health insurance markets with the nonpartisan Kaiser Family Foundation. “You would have the flexibility to discourage them.”

Several provisions in the federal health care law work together to leave older smokers with a bleak set of financial options, said Pollitz, formerly deputy director of the Office of Consumer Support in the federal Health and Human Services Department.

First, the law allows insurers to charge older adults up to three times as much as their youngest customers.

Second, the law allows insurers to levy the full 50 percent penalty on older smokers while charging less to younger ones.

And finally, government tax credits that will be available to help pay premiums cannot be used to offset the cost of penalties for smokers.

Here’s how the math would work:

Take a hypothetical 60-year-old smoker making $35,000 a year. Estimated premiums for coverage in the new private health insurance markets under Obama’s law would total $10,172. That person would be eligible for a tax credit that brings the cost down to $3,325.

But the smoking penalty could add $5,086 to the cost. And since federal tax credits can’t be used to offset the penalty, the smoker’s total cost for health insurance would be $8,411, or 24 percent of income. That’s considered unaffordable under the federal law. The numbers were estimated using the online Kaiser Health Reform Subsidy Calculator.

“The effect of the smoking (penalty) allowed under the law would be that lower-income smokers could not afford health insurance,” said Richard Curtis, president of the Institute for Health Policy Solutions, a nonpartisan research group that called attention to the issue with a study about the potential impact in California.

In today’s world, insurers can simply turn down a smoker. Under Obama’s overhaul, would they actually charge the full 50 percent? After all, workplace anti-smoking programs that use penalties usually charge far less, maybe $75 or $100 a month.

Robert Laszewski, a consultant who previously worked in the insurance industry, says there’s a good reason to charge the maximum.

“If you don’t charge the 50 percent, your competitor is going to do it, and you are going to get a disproportionate share of the less-healthy older smokers,” said Laszewski. “They are going to have to play defense.”

*Modified from a LifeHealthPro.com article

0

CBO: PPACA tax credit could be big

By 2021, federal health insurance purchase tax subsidies could amount to about 13 percent of the insurer’s total 2011 premium revenue.

Analysts at the Congressional Budget Office (CBO) have analyzed the premium assistance tax credit, a component of the Patient Protection and Affordable Care Act of 2010 (PPACA), in a general report on refundable tax credits.

An ordinary tax credit is an amount that a taxpayer can subtract directly from the amount a taxpayer owes the government Traditionally, if using a tax credit would make the taxpayer’s tax bill a negative number, the taxpayer simply got out of paying taxes, or possibly could apply the amount to the next year’s tax bill. When using a refundable tax credit produces a tax obligation amount that happens to be a negative number, the government pays that amount to the taxpayer, CBO analysts wrote in their report.

The topic is of special interest this year, because the drafters of PPACA used refundable tax credits as the vehicle for helping low-income and moderate-income pay for health insurance.

When Congress created the first refundable tax credit — the Earned Income Tax Credit (EITC) program — in 1975, the goal of that program and later, similar programs was mainly to help low-income people increase their income, the analysts said.

In the past, Congress usually used spending programs such as the Food Stamp program, Medicaid and Pell Grants to help people pay for specific goods and services, such as food, health care or education, the analysts said.

Today, because tax credit programs tend to be more palatable to members of Congress and to the credit users than “government handouts,” Congress has structured more aid programs as refundable tax credit programs.

The EITC program and the child tax credit program will be by far the biggest refundable tax credit programs this year, and they are on track to generate about $125 billion of the $149 billion in refundable tax credits that taxpayers will report, the analyst said.

The new PPACA premium assistance tax credit could lead to about $35 billion in credit costs in 2014, and $110 billion of the $213 billion in total refundable credit costs in 2021, the analysts said.

U.S. health insurers took in about $864 billion in premium revenue in 2011, according to government estimates.

Tax credit recipients are supposed to use the premium assistance tax credit to pay health insurance premiums, and most will then have to use some of their own cash to cover the rest of the cost of the premiums.

Private health insurers are expected to generate much higher premium revenue in 2021 than in 2011, but, if consumers had spent an additional $110 billion in health insurance in 2011, that would have increased their revenue by about 13 percent.

Distributing benefits through refundable tax credits rather than through direct spending programs may effect the fairness of the tax system, the complexity of the tax system, and the efficiency of how resources are allocated in the economy, the analysts said.

In some cases, the analysts said, researchers have suggested that well-designed refundable tax credits might increase fairness and resource allocation efficiency.

Studies have suggested that the EITC has helped lead to a big increase the employment and earnings of single mothers that took place in the 1990s, the analysts said.

In the past few years, as the result of the weak economy, older tax credits, and new, stimulus-related tax credits, the average individual income tax rate for households in the bottom 40 percent of the income distribution has been negative, the analysts said.

The analysts also talk about questions about the complexity of administering the premium assistance tax credit.

PPACA lets individuals ask to get an advance on the premium assistance tax credit that they expect to collect, so that they can use the amount to pay for health coverage in 2014.

The government is supposed to pay the advance payments directly to the health insurers, and PPACA will limit how much individuals have to pay back if the government pays an advance premium assistance tax credit amount that happens to be bigger than what an individual actually qualifies for.

The amount the individual ends up qualifying for will depend on how much the individual earns, who else is in the individual’s family, and how much others in the individual’s family earn, and the initial, preliminary credit determination will depend on what those factors look like two years before the individual officially gets the credit, the analysts said.

“The amount of the credit will later be recomputed on the basis of the taxpayer’s characteristics in the year that the subsidy is paid,” the analysts said. “As a result, some recipients may have to repay part or all of any overpayment if changes in their family’s composition and income affect their eligibility for the credit or its amount.”

*Modified from LifeHealthPro.com article

 

0

Are 2013 health care tax hikes just the start?

BY 

DECEMBER 26, 2012

WASHINGTON (AP) — New taxes are coming Jan. 1 to help finance the Patient Protection and Affordable Care Act (PPACA). Most people may not notice. But they will pay attention if Congress decides to start taxing employer-sponsored health insurance, one option in play if lawmakers can ever agree on a budget deal to reduce federal deficits.

The tax hikes already on the books, taking effect in 2013, fall mainly on people who make lots of money and on the health care industry. But about half of Americans benefit from the tax-free status of employer health insurance. Workers pay no income or payroll taxes on what their employer contributes for health insurance, and in most cases on their own share of premiums as well.

It’s the single biggest tax break the government allows, outstripping the mortgage interest deduction, the deduction for charitable giving and other better-known benefits. If the value of job-based health insurance were taxed like regular income, it would raise nearly $150 billion in 2013, according to congressional estimates. By comparison, wiping away the mortgage interest deduction would bring in only about $90 billion.

“If you are looking to raise revenue to pay for tax reform, that is the biggest pot of money of all,” said Martin Sullivan, chief economist with Tax Analysts, a nonpartisan publisher of tax information.

It’s hard to see how lawmakers can avoid touching health insurance if they want to eliminate loopholes and curtail deductions so as to raise revenue and lower tax rates. Congress probably wouldn’t do away with the health care tax break, but limit it in some form. Such limits could be keyed to the cost of a particular health insurance plan, the income level of taxpayers or a combination.

Many economists think some kind of limit would be a good thing because it would force consumers to watch costs, and that could help keep health care spending in check. PPACA took a tentative step toward limits by imposing a tax on high-value health insurance plans. But that doesn’t start until 2018.

Next spring will be three years since Congress passed the health care overhaul but, because of a long phase-in, many of the taxes to finance the plan are only now coming into effect. Medicare spending cuts that help pay for covering the uninsured have started to take effect, but they also are staggered. The law’s main benefit, coverage for 30 million uninsured people, will take a little longer. It doesn’t start until Jan. 1, 2014.

 

0

Pre-Tax Healthcare Accounts for Medical Expenses

Due to rising health insurance costs, the majority of U.S. businesses are increasing the employees’ share of health care.  This “cost-shifting” from employers to employees comes in many different forms, including: pre-tax healthcare accounts

  • Increased employee share of premiums
  • Increased deductibles
  • Increased coinsurance
  • Increased or elimnated co-pays

Many businesses are looking for ways to lower the expense of medical benefits without reducing coverage for employees. Pre-tax health care accounts can help businesses and employees save money by paying for health care expenses with pre-tax dollars.

What are the Different Types of Pre-tax Healthcare Accounts?

The most common forms of Pre-tax Healthcare Accounts include:

Health Reimbursement Arrangements – A Health Reimbursement Arrangement, or HRA, is an IRS approved, employer-funded, tax advantaged employer health benefit plan that reimburses employees for out of pocket medical expenses and individual health insurance premiums. A health reimbursement arrangement is not health insurance. A health reimbursement arrangement allows the employer to make contributions to an employee’s account and provide reimbursement for eligible expenses. A health reimbursement arrangement is an excellent way to supplement health insurance benefits and allow employees to pay for a wide range of medical expenses not covered by insurance.  It is often referred to (incorrectly) as a health reimbursement account.

Premium Only Plans – A Section 125 Premium-Only-Plan, or POP, is a cafeteria plan which allows employees to pay their health insurance premiums with tax-free dollars.  Traditionally, these POP plans have been used in combination with employer-sponsored group health insurance plans. However, beginning January 1st, 2009, employees can now use POP plans to pay individual health insurance premiums with tax-free dollars.

Health Flexible Spending Accounts – With a Health Flexible Spending Account, or FSA, employees direct their employer to lower their pre-tax wages next year by $200/month, and the employee, on the first day of the next plan year, receives a $2,400 FSA allowance for medical expenses. The employee must be given access to the full $2,400 on the first day of the plan year. If an employee spends the full $2,400 in the first month and quits, the employer is not allowed to recover the unpaid balance.

Health Savings Accounts  – Health Savings Accounts, or HSAs, are individual bank accounts owned by employees that allow tax-free medical expense reimbursement.  While HSAs are often packages as “employer benefits”, they are really more like IRAs in that individuals can set them up and contribute to them on their own.
What are the Benefits of Pre-tax Healthcare Accounts?

The employer and employee benefits of pre-tax healthcare account include:

  • Reduced payroll costs – Pre-tax Healthcare Accounts saves employers and employees thousands of dollars in payroll taxes
  • Increases employee’s benefits and take home pay – Pre-tax Healthcare Accounts increase employee compensation because the does not have to pay income taxes on reimbursements.

*Modified from a Zane Benefits article

0

Employer Mandate – What Happens If a Company Does NOT Offer Health Insurance

The Health Care Reform bill requires certain employers to offer health insurance, else pay a tax penalty: Effective January 1st, 2014, “applicable large employers” will be required to offer “minimum essential coverage” that is “affordable” to their employees. “Applicable large employers” who fail to offer “minimum essential coverage” that is “affordable” will be required to pay a “penalty” on their tax return. obamacare approved

1) Who are “applicable large employers”?
2) What qualifies as “minimum essential coverage”?
3) What is the penalty if I do not offer “minimum essential coverage”?
4) What is the penalty if I do offer “minimum essential coverage”, but it is not “affordable” for some of my employees?

1) Who are “applicable large employers”?

A company is defined as an applicable large employer on a calendar year basis. For example, a company could be an applicable large employer in 2015, but not in 2014. If the company employed 50 or more full-time employees on average during the preceding calendar year, they are an applicable large employer for the current calendar year.

A company is NOT an applicable large employer if the company:

  •     employed less than 50 full-time employees on average during the previous calendar year, or
  •    employed more than 50 full-time employees no more than 120 days during the previous calendar year due to a seasonal workforce.

Calculating the number of full-time employees.

Generally, a full-time employee is an employee who is employed on average at least 30 hours of service per week in a given month. However, for purposes of determining whether a company is an applicable employer, the company must include all full-time employees plus the full-time equivalent of its part-time employees.

To calculate the full-time equivalent of part-time employees, a company should add the number of hours worked by part-time employees and divide the total by 120.

The sum of the full-time employees and the full-time equivalent of the part-time employees is the number used to determine whether a company is an applicable large employer.

  • Simple translation: If you have less than 50 employees, you are not an applicable large employer. If you have 50 or more employees, you probably are an applicable large employer.

2) What qualifies as “minimum essential coverage”?

Minimum essential coverage is the minimum amount of health insurance coverage an applicable large employer must make available to avoid paying the maximum penalty (see #3, below).

In order to avoid paying the maximum penalty, the employer must offer each employee the ability to enroll in minimum essential coverage through an eligible employer-sponsored plan, which is: any plan or coverage offered in the small or large group market within a State (including small business exchanges),
coverage under a grandfathered health plan, or a qualified governmental plan.

3) What is the penalty if I do not offer “minimum essential coverage”?

An applicable large employer who does not offer minimum essential coverage may not have to pay a penalty.

The employer only pays a penalty if at least one employee enrolls in a health insurance exchange and also qualifies for premium subsidies and/or other tax credits from the federal government.

  • If at least one employee receives federal subsidies due to purchase of health insurance through an exchange in a given month, the employer must pay a monthly penalty based on the number of full-time employees employed during that month.

IMPORTANT: When calculating the amount of the penalty, the employer receives a credit of 30 full-time employees. (For example, a company with 50 full-time employees only has to consider 20 employees for purposes of the penalty).

The annual per employee penalty is $2,000.

To get the monthly per employee penalty, you simply divide the annual penalty by 12.

To calculate the total monthly penalty, you multiply the # of full-time employees employed during the month minus 30 by the monthly per employee penalty.

Example.

In February, ABC Manufacturing employs 60 full-time employees and does not offer minimum essential coverage. In February, at least one employee purchases health insurance through the exchange and receives premium subsidies from the federal government.

The annual per employee penalty is $2,000.

The monthly per employee penalty is $2,000*(1/12).

For purposes of this calculation, we only need to consider 30 full-time employee due to the 30-employee credit.

The total monthly penalty is equal to 30*2,000*(1/12) which is $5,000.

4) What is the penalty if I do offer “minimum essential coverage”, but it is not “affordable” for some of my employees?

An applicable large employer that offers minimum essential coverage to its full-time employees may still be required to pay a penalty if the coverage is not “affordable” for one or more employees.

An employer’s coverage is considered unaffordable for any full-time employees who, in a given month, enrolls in a health plan offered through an Exchange and are eligible to receive federal premium subsidies (or cost-sharing subsidies).  (Note added 07/15/2010:  An employee is only eligible for premium subsidies through the exchange if their required contributions for their employer’s plan is greater than 9.5%)

If one or more full-time employees receive federal subsidies due to purchase of health insurance through an exchange in a given month, the employer must pay a monthly penalty based on the number of full-time employees who receive federal subsidies.

The annual per employee penalty for not offering affordable coverage is $3,000.

To get the monthly per employee penalty, you simply divide the annual penalty by 12.

To calculate the total monthly penalty, you multiply the # of full-time employees who receive premium subsidies (or cost-sharing subsidies) by the monthly per employee penalty.

The penalty is capped at a maximum of $2,000 per full-time employee per year.

Example.

In February, ABC Manufacturing employs 60 full-time employees and does offer minimum essential coverage. In February, three (3) employee purchase health insurance through an exchange and receive premium subsidies from the federal government. Thus, the coverage is unaffordable for three (3) employees for the month of February.

The annual per employee penalty is $3,000.

The monthly per employee penalty is $3,000*(1/12).

For purposes of this calculation, we only need to consider the 3 full-time employee who are receiving federal subsidies.

The total monthly penalty is equal to 3*3,000*(1/12) which is $750.

*Modified from a Zane Benefits article

 

 

0

Individual Mandate – What Happens if You Don’t Buy Health Insurance

The Health Care Reform bill requires certain individuals to purchase health insurance, else pay a tax penalty:

Effective January 1st, 2014, “applicable individuals” will be required to maintain “minimum essential coverage” for themselves and their dependents.  “Applicable individuals” who fail to maintain “minimum essential coverage” will be required to pay a “penalty” on their tax return.individual mandate

1) Who are “applicable individuals”?

2) What is minimum essential coverage”?

3) How much is the “penalty”?

  • Who are “applicable individuals” for the Individual Mandate?

A person is defined as an applicable individual on a monthly basis.  For example, you could be an applicable individual in January, but not in February.  A person is an applicable individual, unless one of the following circumstances apply: the person has been approved for a religious exemption under Section 1311(d)(4)(H) of the Patient Protection and Affordable Care Act (PPACA) the person is a member of a health care sharing ministry the person is not a citizen or national of the United States or an alien lawfully present in the United States the person is incarcerated without any pending disposition of charges

Simple translation: A U.S. citizen is an applicable individual unless he or she is religiously exempt, a member of a health care sharing ministry or in jail.

  • What is “minimum essential coverage” for the Individual Mandate?

Minimum essential coverage is the minimum amount of health insurance coverage an applicable individual must purchase to avoid paying the penalty.

The following plans qualify as minimum essential coverage:

Coverage under government sponsored programs (e.g. Medicare and Medicaid)

Coverage under an employer-sponsored group health plan offered in the small or large group market within a State

Coverage under a plan offered in the individual market within a State

Coverage under a grandfathered health plan

Coverage under a State risk pool as recognized by the Secretary of Health and Human Services (HHS)

The following plans do not qualify as minimum essential coverage:

Coverage only for accident, or disability income insurance, or any combination thereof

Limited scope dental or vision benefits

Benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof

Coverage for on-site medical clinics

Coverage only for a specified disease or illness

Hospital indemnity or other fixed indemnity insurance

Other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits

Simple translation: “If you have individual health insurance, employer-sponsored group health insurance, or if you participate in a State risk pool, Medicare or Medicaid, then you have minimum essential coverage.

  • How much is the “penalty” for the Individual Mandate?

If an applicable individual does not maintain minimum essential coverage for 1 or more months during a tax year, then they must pay a penalty.

  • The size of the penalty is phased-in over three years:

In 2014, the penalty will be $95 per person up to a maximum of three times that amount for a family ($285)* or 1% of household income if greater

In 2015, the penalty will be $325 per person up to a maximum of three times that amount for a family ($975)* or 2% of household income if greater

In 2016, the penalty will be $695 per person per year up to a maximum of three times that amount for a family ($2,085)* or 2.5% of household income if greater

*Note: If you claim dependents, you are responsible for making sure they have minimum essential coverage.

Each year, the penalty is capped at an amount equal to the national average premium for bronze level health plans offered through state exchanges.

An applicable individual can be exempted from the penalty calculation for a month if during the month:

The individual has income below the filing threshold determined by the Secretary of the HHS.

The individual’s cost to purchase health insurance exceeds 8% of gross income

The individual is a member of an Indian tribe.

The secretary of HHS determines the individual qualifies for a hardship that made him/her incapable of obtaining health insurance.

Simple translation: The amount of the penalty depends on a number of factors including your income, the size of your household and your access to affordable health insurance.

  • In most cases, it will make most economic sense to purchase health insurance vs. paying the penalty.

Modified from a Zane Benefits Article

 

0