Affordable Care Act
The Affordable Care Act was passed almost three years ago with the goal of extending quality health insurance coverage to more Americans. The Act’s core requirements are that most Americans must have health insurance and that all but small employers must offer insurance to full-time employees.
To encourage compliance, the Act takes a carrot-and-stick approach: for both individuals and employers, credits are offered for those who need financial help with buying insurance, and penalties are defined for those who do not get insurance. These requirements, credits and penalties become effective January 1, 2014.
Update: The U.S. Treasury Department has announced a one-year delay in the requirement for employers to offer insurance to their employers. That requirement will not go into effect until 2015, and the employer penalty will not be assessed until 2015. The January 1, 2014 deadline for taxpayers remains the same.
To help you prepare, we’ve created calculators to help you find what your projected credit (individuals only) and penalty would be. We also provide helpful FAQs to answer the very questions you likely have.
- Your household income must be between 100% and 400% of the federal poverty level.
- Your portion of the insurance premium must be more than 9.5% of your household income.
You may also qualify if you were offered (but did not enroll in) employer-sponsored insurance that:
- Is “unaffordable” – the self-only premium is more than 9.5% of your household income, or
- Does not cover at least 60% of covered expenses.
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How much is my credit
The Taxpayer Credit Calculator helps you estimate your Premium Tax Credit. To see if you qualify for the credit, first use the Credit Qualification Calculator. You must be enrolled in health insurance through an Exchange to be considered for the credit.
The calculator is an estimator, not an accurate calculation of your projected credit.
The calculations are based on a projected 2014 coverage cost of $4,500 for a 40-year-old single person, and $12,130 for family coverage.
What is my penalty
The Taxpayer Penalty Calculator helps you figure your penalty for not having health insurance for yourself and your dependents. Unless exempted from the penalty, you and your dependents must be insured by January 1, 2014.
The penalty is incurred for any month you are uninsured, but you may be uninsured for up to three months without penalty. Note that the penalty is phased in, so it increases in 2015 and 2016.
The calculator assumes you were uninsured for the entire year.
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Taxpayer FAQs
- Will I have to have health insurance?
Effective January 2014, the Affordable Care Act requires you to have “minimum essential” health insurance if you are a U.S. citizen or legal resident. Your dependents must also be covered. Exemptions will be allowed for:
- Financial hardship (standards will be defined by the Secretary of Health and Human Services)
- Religious objections (applies only to certain faiths)
- Members of American Indian tribes
- Those uninsured for less than three months
- Undocumented immigrants
- Incarcerated individuals
- Those for whom the lowest cost plan option exceeds 8% of income
- Those with incomes below the tax filing threshold
What happens if I don’t have health insurance?
Starting in 2014, if you don’t have minimum essential coverage, or one of the accepted exemptions listed above, you will have to pay a penalty. The penalty starts out fairly low for 2014, but increases considerably in 2015 and again in 2016. Use our calculator to see the projected penalty for each year.
How much is the penalty?
The annual penalty will be a set amount per individual (including dependents) or a percentage of your taxable income, whichever is greater. The annual penalty is capped at an amount roughly equal to the national average premium for a qualified health plan. In other words, the penalty will be no more than it would have cost to buy insurance in the first place.
The penalty is charged for each month you (and your dependents) don’t have minimum essential coverage, and will be figured on your tax return. You can be uninsured for up to three months without penalty.
If I don’t have insurance, when is my penalty due?
The penalty is figured on your tax return and is due by the normal tax filing deadline, usually April 15.
How long can I be uninsured without penalty?
You can be uninsured for up to three months without penalty.
What if I can’t afford health insurance?
As listed above, exemptions are provided for those with low income. Also, being covered by Medicaid counts as being covered, and Medicaid will expand to cover those under age 65 who have an income of up to 138% of the federal poverty level.
Also, people in their 20s may have the option to buy a lower-cost “catastrophic” health plan.
Finally, if your income is less than 400% of the federal poverty level, a new Premium Tax Credit will be available to help you buy insurance. Use our calculators to see if you would qualify for the credit and how much credit you could receive.
What is “minimum essential coverage”?
The Affordable Care Act requires health insurance plans to provide minimum services in 10 categories, called “essential health benefits.” While nearly everyone must obtain minimum essential coverage, each state can choose from a set of plans to serve as its benchmark plan. Whatever benefits that plan covers in the 10 categories will be deemed the essential benefits in that state. The 10 categories are:
- Ambulatory patient services
- Emergency services
- Hospitalization
- Maternity and newborn care
- Mental health and substance use disorder services, including behavioral health treatment
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive and wellness services and chronic disease management
- Pediatric services, including oral and vision care
Where would I get insurance?
Most people who have insurance at work will continue to be insured there. If your share of the premium for the insurance is more than 8% of your income, you’ll be able to shop for insurance in a state insurance exchange. To find your state’s exchange, visit www.healthcare.gov.
What is a health insurance exchange?
Exchanges, or marketplaces, are new organizations that have been set up for buying health insurance. They offer a choice of different health plans. Each state is expected to establish an Exchange, with the federal government stepping in if a state has not set one up.
What’s the least amount of insurance I can buy?
The lowest cost plan would be the Bronze plan offered by an Exchange. Each state’s Exchange will offer the following coverage levels:
- Bronze = covers 60% of covered healthcare expenses
- Silver = covers 70%
- Gold = covers 80%
- Platinum = covers 90%
Also available if you’re under 30 is a “catastrophic” plan. Such plans must still provide minimum essential coverage, but have a lower premium because of a higher deductible and out-of-pocket costs than the other listed plans. An employer would not be allowed to use a catastrophic plan as minimum essential coverage for employees.
What is the Premium Tax Credit?
The purpose of the credit (also known as a subsidy) is to help individuals with moderate income buy health insurance through an Exchange. The credit is refundable, so it will increase your tax refund or help provide you one. If you don’t have the money needed to pay the full insurance premium upfront, you may qualify to get the credit in advance, without waiting for the refund on your tax return. Such an advance payment of the credit would not come to you, it would go directly to the insurance company. The advance credit payment will be reconciled against your actual credit amount when you file your tax return. You must be enrolled in a health insurance plan through an Exchange to be considered for the credit. The credit is effective January 2014.
Do I qualify for a Premium Tax Credit?
The credit is available only to those who buy insurance through an Exchange and meet certain requirements:
- Your household income must be no more than 400% of the federal poverty level. For example, using the 2013 amount for a family of four (48 contiguous states), the top cutoff amount would be $94,200. See the current poverty levels
- Your part of the insurance premium must be more than 9.5% of your household income, or the employer-offered insurance must not cover more than 60% of covered healthcare costs.
Calculate whether you qualify for the Premium Tax Credit
What will the amount of my Premium Tax Credit be?
The actual amount will be tied to the cost of premiums in the Exchange for your area and your family income. The credit will be the difference between the cost of the second-lowest, “Silver” plan and your contribution. Your contribution is limited to the following percentages of income for specific income levels:
| Your Percentage of Federal Poverty Level |
Your Contribution |
|---|---|
| 100–133% | 2% of income |
| 133–150% | 3–4% of income |
| 150–200% | 4–6.3% of income |
| 200–250% | 6.3–8.05% of income |
| 250–300% | 8.05–9.5% of income |
| 300–400% | 9.5% of income |
Calculate your projected Premium Tax Credit
Do I have to take the insurance my employer offers?
No, you can join your spouse’s coverage, buy coverage through an Exchange, or buy insurance on your own, directly from an insurance company or broker. However, as of 2014, when individual responsibility requirements take effect, if you refuse your employer’s coverage and are without coverage for yourself and your dependents, you will be subject to a penalty.
If you waive coverage for any reason other than that it costs more than 9.5% of your adjusted gross income or that it does not cover at least 60% of covered healthcare expenses, you can still buy coverage through an Exchange, but will not be eligible for the Premium Tax Credit.