IRS Could Help Identify Uninsured

Affordable Care Act: IRS Could Help Identify Uninsured

The Affordable Care Act (ACA) is intended to make affordable health insurance available to all. But we have seen that simply making it available does not result in 100% enrollment…not even close. It seems odd that you would have to push and prod people to take advantage of something that is free, but that’s the reality of Obamacare. Millions of low to moderate income families in the United States would qualify for free health care through Medicaid or highly subsidized policies through the insurance exchange if they would just apply.

There are many reasons why some qualifying families do not take advantage of these health care benefits. Some find the process confusing and don’t know where to go for help. Some people just procrastinate and don’t give it much thought until there is a health emergency. Others simply fail to get the message in the first place. Failure to get the message is perhaps the biggest tragedy of all in this, the Information Age.

The IRS, for example, obtains information from tax returns that could help identify people who would be eligible for government-subsidized health care, but who don’t take the steps to make it happen. The key indicator is the earned income tax credit. NPR reports that about half the taxpayers who receive this credit would be eligible for “significant financial assistance.” There are some states that do a much better job than the IRS of informing these low-income families of the potential health benefits available to them. The IRS certainly could do more in this area since they are currently doing nothing (besides providing a link to the government health insurance website). Of course, sending them a notice from the IRS might not have the same effect as putting them in touch with a “navigator” who would contact them directly with assistance.

More on the Individual Mandate

With the individual mandate element of ObamaCare going into effect in 2014, some people who are currently without health insurance may be wondering if they should begin looking into joining the ranks of the insured. We now know what the penalty will be for failure to secure insurance, so there will certainly be those who do a little cost/benefit analysis. As the deadline creeps up on us, perhaps some are also wondering why. Why is there a penalty at all?

I found a succinct and informative article on the PBS website that answers many of the common questions that pop up in relation to the individual mandate:

If you aren’t already aware, Americans will be required to obtain health insurance beginning in 2014 or else pay a tax penalty of up to $95 per adult and half that for each child, or 1 percent of the household income, whichever is greater. And if you still don’t have coverage by 2016, you’ll pay as much as $695 per adult and $347 per child pursuant to the individual mandate.

What I really like about the PBS article is the plain-language explanation of the “why.”  For the health care overhaul to work, there has to be a broad base of participants. If everybody participates, including the young and the healthy, then the rates will (ideally) remain low. If coverage were not mandatory, then there would be an inordinate number of sick, high-cost participants which would drive the price of insurance through the roof.

However, opponents of the individual mandate believe that the penalty isn’t severe enough to ensure anything near 100% participation. Some people will certainly weigh their options and risk a penalty that will be lower than a health insurance premium, especially if the IRS is not going to do too much to enforce the individual mandate.

IRS Launches New ACA Website

The IRS’ new Affordable Care Act website is up and running.  Most of the new content is organized into three main parts: (1) Individuals & Families, (2) Employers, and (3) Other Organizations.

The Individuals & Families page is further broken down into two subtopics designed to educate the public on what they need to consider immediately (in 2013) and what they should look forward to in 2014.  Individuals should explore and begin planning for open enrollment in the Health Insurance Marketplace, which opens October 1, 2013.

The Employers page has a separate set of instructions for small employers (fewer than 50 full-time employees) and large employers (50 or more full-time employees).  It helps to educate employers on their specific coverage and reporting requirements and also explains what employer credits might be available.

Some organizations will be subject to special rules under the Affordable Care Act.  These “other organizations” include insurers, miscellaneous business types, non-profits, and government agencies.

The ACA website features a nifty news bar so we can always stay informed of new developments related to the Affordable Care Act.  It also very neatly lists all the various tax provisions, both in layman’s terms and in the form of news releases, notices, regulations, revenue procedures, revenue rulings, and Treasury decisions for the tax lawyer and studious type.  Lastly, the new ACA website includes links to related federal government websites like the Department of Health & Human Services, the Small Business Administration, and the Department of Labor.

Obamacare and the Individual Mandate

The health care coverage mandates under the Affordable Care Act are scheduled for January 1, 2014.  So what will it mean for individuals? There are penalties and “carrots” associated with the looming health care changes.

Starting in 2014 if your employer doesn’t offer insurance, you will be able to buy it directly from an affordable insurance exchange. An “exchange” is a supposedly transparent and competitive insurance marketplace where individuals and small businesses can buy affordable and qualified health benefit plans. Exchanges will offer a choice of health plans that meet certain benefit and cost standards.

As an individual who needs health care, in addition to the incentives offered by your employer if you are employed, there are incentives for you to obtain adequate health insurance.  Beginning in January 2014, insurance companies will be prohibited from refusing to sell coverage or renew policies based pre-existing conditions or from charging higher rates based on gender or health status. Additionally, depending on your income, advanceable tax credits will be available on qualified insurance coverage. The advanceable tax credit will lower your monthly premium payments so that you will not have to wait for the tax season to arrive to realize the benefit. This is the carrot.

Here’s the penalty: unless you meet the criteria for an exemption, you’re going to pay Uncle Sam if you don’t have health insurance. This is the “individual mandate.” The imposed fee is intended to help offset the costs of caring for uninsured Americans. Exemptions from the individual mandate for obtaining health insurance include religious reasons or where the least expensive health insurance policy available exceeds 8% of income. Unpaid fees may result in IRS tax problems since the IRS will be charged with collection.

If you don’t meet the criteria for an exemption, and you choose to not obtain health insurance, you will pay Uncle Sam nonetheless. The amount is tiered year to year beginning in tax year 2014. For year 2014, if you don’t have qualified health coverage, the minimum fee will be the greater of 1% of your annual income or a flat amount of $95. In tax year 2016, this penalty will increase to the greater of 2.5% of your annual income or a flat amount ranging from $695 to $2,085, depending on your household size. After year 2016, the penalty will be increased annually by the cost-of-living adjustment.

Tax Incentives for Small Businesses under Obamacare

The health care coverage mandates under the Affordable Care Act are scheduled for January 1, 2014.  So what will it mean for business owners?

The small business health care tax credit is the carrot for small business owners to contribute to their employee’s health care. Beginning in 2014, Uncle Sam’s carrot for small businesses that pay at least half of their employee premiums for qualified health insurance coverage, and employ 25 or fewer workers with an average income of $50,000 or less, is a tax subsidy on the health insurance premiums they pay.

The maximum qualified subsidy is 50% and is available to small businesses with an average payroll for full-time equivalent employees of $25,000 and ten or less full time employees. The subsidy is presently scheduled to be reduced by 3.35% per additional employee and 2% per additional $1,000 of average income.

Therefore, the savvy small business owner, who is doing good by contributing to their employee’s health insurance will be able reduce their expenses by paying careful attention to their workforce and wages paid. It may be necessary to consult with an experienced CPA or tax attorney for a more individualized understanding of these tax incentives.

Small Business Health Care Tax Credit

The IRS recently released a special edition tax tip of interest to small business owners who may be struggling to continue health care coverage for their employees. A special tax credit is available to employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement. To qualify for the credit, the employer must have 25 or fewer workers with average income of $50,000 or less. The maximum credit for eligible small business employers is 35 percent of premiums paid. The credit may be claimed using Form 8941.

Even though many standard filing deadlines have passed for 2010 taxes, the IRS points out that the Small Business Health Care Tax Credit may still be available subject to the following deadlines:

  • businesses affected by certain natural disasters (deadline is October 31)
  • business entities such as sole props, partnerships, and S-corp shareholders who report their income on Form 1040 and who requested an extension (deadline is October 17)
  • tax-exempt organizations that file on a calendar year basis and requested an extension (deadline is November 15)
  • business that have already filed can still go back and claim the credit by filing an amended return