Not All Uninsured Will Have To Pay ACA Tax Penalty
Contrary to what some people think, not everyone who does not have the required health insurance this year will have to pay a tax penalty when filing their 2014 taxes.
Some may qualify for an exemption to reduce or eliminate their Affordable Care Act tax penalty, said
"In fact there are more than 30 exemptions you can apply for that fall into two categories," he said.
People with incomes so low they're exempt from filing a tax return or those for whom the lowest-priced coverage costs more than 8 percent of their household income are some.
A recent survey shows that almost half of Americans are unaware they are required to report their health insurance status on their upcoming 2014 tax returns.
Fifty-six percent were unaware of the tax penalty exemptions, while nearly half (45 percent) did not know about tax credits that allow those eligible to lower their insurance premiums, the survey showed.
Moreover, while 62 percent of uninsured Americans are aware that those without any health insurance will be required to pay a penalty, 87 percent do not realize that the deadline to avoid a tax penalty for 2014 has passed.
"These numbers indicate that even with open enrollment (for 2015) in full swing many Americans still do not know the correlation between their health care and taxes," said
Local CPA Benny Benevides said there is confusion among tax preparers, the government and the
"Theoretically, everything is set," he said. "But I'm expecting people to get notices," from the
Taxpayers may have to respond to the notices, and tax refunds may get held up, he said.
"The Affordable Care Act sets up a system of third party information reporting to the
"Tax preparers should follow their normal due diligence in determining if their client has appropriate health coverage," he said. "Starting next year, insurers and certain employers will send reports on health coverage to the taxpayer and the
Meanwhile, some of those exemptions from the health insurance penalty are easier to claim. Others are more involved.
Exemptions can be claimed while filing an income tax return or through the health insurance marketplace/exchange.
If the exchange grants the exemption, it will generate an exemption certificate with a number that should be included on
According to the
irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Exemptions has a chart that describes the various exemptions and how people can obtain them.
Mertes said exemptions that can be claimed on the tax return would cover some of the following people:
Those who had health insurance coverage by
Those whose household income is below the minimum filing amount. According to the
Some of those eligible for exemptions granted by the health exchange/ marketplace include:
A member of a religious sect with objections to insurance and those who have experienced a hardship in 2014.
Those who meet one of the 15 hardship exemption criteria. Some of those include those who experienced homelessness, eviction, foreclosure, bankruptcy, or those who were denied
"The more difficult exemptions will be hardship exemptions that require documentation like utility shut-off, eviction or foreclosure notices or death certificates, for example," Mertes said.
The process is also more complicated, Mertes explained. It requires a taxpayer to submit a paper application to the
"Hardship applications with HHS should be done early in the tax season in order to meet the
He, however, encouraged those eligible for a tax return exemption to take it."...in any case, applying for an exemption is well worth the effort," he said.
To get full information on penalty exemptions, including how to apply for them, go to healthcare.gov/exemptions.
Another misconception people have is amount the amount of tax penalty for the first year.
"You may have heard that the penalty the first year is 'just
It's actually whichever amount is greater:
Many people will be surprised by this year, he said.
He gave an example of a couple who files jointly with a household income of
"Because their household income is
"Like the Advance Tax Credit, this fee will be deducted from their tax refund," he added.
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