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Enroll for Health Insurance Soon or Pay the Price, Litterally

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Ed note:

There’s a lot to understand about the new Affordable Care Act, but the issue that has many people very confused is the penalty. The Tax Institute’s lead tax research analyst Lindsey Buchholz explains when and how the penalty could affect you. 


If you are required to have minimum essential health care insurance in 2014, you need to act quickly if you have not enrolled. The deadline for open enrollment in a Marketplace health insurance plan will close on March 31, 2014.


If you don’t enroll before March 31, and are not eligible for an exemption, you will likely be charged the penalty on your 2014 tax return you file in 2015. After open enrollment closes, you cannot enroll in a Marketplace plan unless you have a qualifying life event that allows you to enroll in coverage outside of open enrollment. A qualifying life event includes moving to a new area with different coverage, loss of other health coverage, marriage, divorce and having a baby.


What’s the penalty?



For 2014, the penalty is 1% of your yearly household income less your filing threshold or $95 per person without coverage ($47.50 for each child under 18), up to a maximum of $285. Whichever number is greater will be used.


Example: We are a married couple filing a joint return with one child under the age of 18 and had no insurance in 2014.  If our household income is $75,000 and our applicable filing threshold is $20,300 for married taxpayers filing jointly, we would pay $547 [1% x ($75,000 - $20,300)] because it is greater than the maximum $285.


If instead our MAGI is $30,000, we would pay $237.50 ($95 + $95 + $47.50) instead of $97 (($30,000 – $20,300) x 1%), because it is greater.


Remember: if you decide to pay the penalty instead of purchasing health insurance, you will have to pay for any medical expenses fully out-of-pocket.


The penalty is figured monthly and there are exemptions for a short gap in coverage. If you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured. However, if you’re uninsured for a continuous period of less than 3 months, you are exempt from the penalty for those months.


There are several other types of exemptions from the penalty, visit healthcare.gov for more information.

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