If you are one of the millions of Americans who declined health insurance and decided to pay the fee tax fine penalty, be aware that it will be a part of your 2014 tax calculations. The penalty for 2014 is relatively cheap, a means to transition Obamacare into your life, but next year and subsequent years, the penalty goes up swiftly — pressuring you to get a health insurance plan or else pay a somewhat hefty price.
Here’s how it works:
“Beginning in 2014, absent a qualified exemption, you will be required to obtain health insurance. If you fail to comply, you will be subject to a penalty of 1.0% of your annual income or $95.00, whichever is greater. In 2015, the penalty increases to the greater of 2.0% of annual income or $325 per person. The following year it becomes the greater of 2.5% of income or $695 per person. After 2016, it will be indexed to the cost of living. It should also be noted that the maximum penalty is capped at three times the per person penalty. For example, if you earn $28,500 in 2014, 1.0% of your income would equal $285. Therefore, if you earn more than this, your maximum penalty would remain the same. All penalties will be due and payable with your annual federal income tax return. Hence, the penalty for 2014 would be due by April 15, 2015 and the IRS will be the collection agency used.”
The method of assessing and collection the fee is through the Internal Revenue Service (IRS). The fee will be collected by deducting its cost from a person’s tax refund. But for those who don’t get a refund, the IRS isn’t allowed to demand payment either, so it is unclear how those fees will be attained. This ambiguity also leads to further questions about how Obamacare is being actually being paid for (as the penalty is one of the revenues to help offset the costs).
“For Americans unsure how the mandate applies to them, there’s plenty of information available from the government itself and from many third-party web sites. The law was designed to make it cheaper for most people to buy insurance than pay the penalty fee, which rises from $95 per person or 1% of your income (whichever is greater) in 2014, to $325 per person or 2% of your income in 2015. (In 2015, the maximum penalty is the national average premium for a bronze plan.)”
Don’t forget too: if you are an Obamacare user, you will have to file an extra form with your taxes, the 1095A. The IRS has a working draft on the form, but doesn’t yet include the instructions on how to calculate the proper subsidy amount. This could potentially cause issues for those who wish to file their taxes right away, because they will have to wait until they receive their form in the mail from the government. To learn more, read here.