Did you recently sign up for health insurance through your state’s health care marketplace? If so, hurray! I’m sure I don’t have to tell you why having affordable health insurance is a great thing. (If you or a loved one doesn’t currently have health insurance, and you haven’t signed up through the Marketplace yet, it’s time to start shopping—the open enrollment period ends in a little over a month, on March 31.)
But wait, you ask—what do taxes have to do with signing up for health insurance? Quite a bit, it turns out. The IRS just released some health care tax tips—from those, here are a couple of really important highlights to keep in mind between now and next tax season. And yes, I did say next tax season—what you know now will definitely help you later.
1. If you received the Advance Premium Tax Credit, you’ll need to ‘settle up’ at tax time.
- First things first, What Is It? If you’re eligible to sign up for health insurance through your state’s health care marketplace, you could be eligible for a tax credit—available as soon as you sign up for health insurance and paid directly to the insurer—to help you pay for it! The amount of your tax credit is based on your projected household income and family size.
- What happens at tax time next year: Because the Advance Premium Tax Credit is based on your projected household income and family size for the coming year, your tax form in 2015 will require you to reconcile those estimates with your actual income and family size. If the estimate doesn’t match the actual at tax time, you could get a refund—or you could end up having to pay back part of the Advance Premium Tax Credit.
- Bottom Line: If there are changes in your household income or family size throughout the year—if someone in your household loses a job, gets a raise, or has a baby, for example—update your Marketplace with that information to avoid any surprises at tax time!
2. The Individual Shared Responsibility Payment kicks in.
- What is it? This is the penalty payment that you’ll be required to pay at tax time next year if you don’t have health insurance, or don’t qualify for an exemption.
In 2014, the penalty is up to $95 per adult and $47.50 per child or 1 percent of your taxable income — whichever is greater. It is supposed to go up substantially in a couple of years.
- What happens at tax time next year: If you (or any of your dependents) don’t maintain health insurance coverage or don’t qualify for an exemption, you’ll pay the penalty when you file your taxes. If you want to know more about how the penalty is calculated, the IRS has got you covered.
- Bottom Line: Unless you fall into one of the narrow exemption categories, you’ll pay a penalty on your tax return next year if you don’t have health insurance. So please let me refer you back to an earlier point—having health insurance that you can afford is a really great thing! Both for you, and for all of us.