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Affordable Care Act: Shared Responsibility Penalty

By Sarah Jansen posted 06-11-2013 09:28 AM

  

The mandatory health insurance provision of the Affordable Care Act (ACA) is effective January 1, 2014.  Under this provision, every U.S. citizen must have health insurance that provides "minimum essential coverage" or be subject to a "shared responsibility" penalty.

The penalty cannot exceed the cost of the "Bronze" level plan premium for the applicable family size as offered through the "Exchanges". ("Family size" is defined as "equal to the number of individuals for whom the taxpayer is allowed a personal exemption deduction".)

To determine your actual "penalty", you must do a few preliminary calculations. (Note that if coverage is in effect for part of the year, the calculations are to be prorated for the applicable full months of coverage/non-coverage.)

The table below illustrates how to determine the applicable penalty. Below the table you will find instructions for the calculations.


    (A)  (B)  (C)  (D)  PENALTY
 YEAR  Family Size
 Flat-Dollar  Percentage-of-Income  Greater of column (A) or column (B)
 Bronze plan premium
Lesser of column (C) or column (D)
   
Note (1)
Note (2) Note (3) Note (4)  
2014
 3 or more
$285 $100,000 MAGI at 1.0% is $1,000
$1,000 $20,000 $1,000
 2015 3 or more   $975 $100,000 MAGI at 2.0% is $2,000  $2,000
$20,000 $2,400
2016
3 or more  $2,085
$100,000 MAGI at 2.5% is $2,500
$2,500 $20,000  $2,500
2016
 3 or more   $2,085 $250,000 MAGI at 2.5% is $6,250
$6,250
$20,000
$6,250
2016
3 or more   $2,085
$800,000 MAGI at 2.5% is $20,000
$20,000
$20,000
$20,000

NOTES:

(1) Flat dollar calculation:
Determine the sum of the applicable flat dollar penalties for those household members not carrying the required coverage.
   2014  2015  2016  2017 and later
 Individual (18 and over)
 $95 $325 $695  inflation indexed
 Individual (under 18)
1/2 of $95
1/2 of $325
1/2 of $695
 inflation indexed
 Maximum household flat-dollar
 3 x $95
 3 x $325
 3 x $695
 inflation indexed
(2) Percentage-of-income calculation:
Determine "household income":
Take the total of the taxpayer's MAGI plus the MAGI of all other individuals who were taken into account in determining the taxpayer's family size AND were required to file an income tax return for the year. (Modified Adjusted Gross Income (MAGI) = AGI plus tax exempt interest plus any foreign earned income exclusion)

Amount subject to percentage-of-income penalty:
Deduct from the household income the applicable gross income threshold amount for filing for that taxpayer for that year to arrive at the dollar amount the percentage penalty applies to. Multiply this amount by the applicable percentage for the tax year. (Note:If you have children who file separately but are eligible for dependent exemptions on your tax return, their MAGI is included in your "household income" when calculating this penalty.)

   2014 2015 2016 and later
 Penalty Percentage  1.0% 2.0% 2.5%

(3) Compare the flat-dollar and the percentage-of-income calculations to determine which is greater

(4) Determine the cost of a "Bronze" level plan for your applicable family size. While these are not yet available, at least one news source has determined bronze-level family coverage for 2016 is expected to be $20,000/year. (http://cnsnews.com/news/article/irs-cheapest-obamacare-plan-will-be-20000-family).



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06-13-2013 08:15 AM

Great information. Thanks, Sarah!