The year 2014 is a watershed for the healthcare reform law. This is when the major changes to your healthcare plan will begin. At this time, all Americans will be required to maintain health insurance. (Some exceptions include Native Americans, prisoners and illegal immigrants.)
If you are not covered by an employer plan, or by Medicare or Medicaid, you’ll have to purchase your own coverage from a market exchange. The IRS is responsible for monitoring whether people comply with the new laws. They’ll do this by requiring you to report the value of your health plan on your tax return. If you don’t have coverage, a penalty will be assessed.
Here are the details:
- Something new on Form W-2: Starting in 2014, you’ll see a new number on your W-2 form. This is how employers will report the value of your health plan to the IRS. This key figure will determine whether you’re eligible for tax credits or liable for tax penalties.
- Health plans are not income: Even though the value of your plan is reported on your W-2, it’s not taxable. So you don’t need to report it as income on your tax return.
- Penalties for those without medical coverage: The penalty starts at $95 or 1% of income (whichever is greater) per person in 2014. It gradually rises until it hits 2.5% or $695 (whichever is greater) per person by 2016.
- Tax credits for low-income filers: If you can’t afford health insurance, you may be eligible for tax credits to help you pay the cost of coverage if you earn between 133% and 400% of the federal poverty level. Based on the current poverty level of $10,830 per year for singles and $22,050 per year for a family of four, assistance would be available for singles with income between $14,404 and $43,320 and families with income between $29,327 and $88,200.
Not sure if you are exempt from the tax penalty or from the requirement to purchase health insurance? The TurboTax Exemption Check, is a free, online tool to help determine whether you might be eligible to waive the tax penalty entirely and apply for a health care exemption.