Starting next year the Patient Protection and Affordable Care
Act will require most Americans to have health insurance.
That means unless you
qualify for an exemption
under the law, you'll have to buy a health plan if you don't
already have one through work, a government program (such as
Medicare or Medicaid) or an individual health plan. If you meet
certain income requirements, you could get a tax credit to help you
But how will the government
if you have health insurance -- and how much of a penalty will you
pay if you don't?
Those are among big questions federal officials are addressing
as they write
for how to put the individual mandate into effect. The mandate --
the provision requiring you to have health insurance in 2014 --
remains the most controversial part of health care reform.
Why your 2012 tax return is important
Tax professionals are telling clients this tax season about the
important changes ahead. The 2012 return you file this year will
serve as a baseline for whether you qualify for a tax credit to
help you afford coverage in 2014.
"This is why it's so important for consumers to get educated,"
says Meg Sutton, senior adviser for tax and health care services at
According to a survey last fall by the Tax Institute at H&R
Block, 77 percent of respondents were unaware that the 2012 tax
return would serve as a baseline for subsidies. And 44 percent of
respondents ages 18 to 34 were unaware of the tax penalties they
could face if they fail to get coverage in 2014.
tax professionals are doing a tax and health care review for all
clients during this tax season. The review includes whether clients
will be eligible for tax credits to buy health insurance and the
potential for tax penalties if they don't get coverage in 2014.
Reporting health insurance coverage
coverage you have in 2014 will be reported to the federal
Health insurers, employers that sponsor health plans and agencies
that administer government health plans will file annual reports to
the IRS about who is covered under their plans. They will also
provide the people they insure with documentation about the
Starting in 2015, when you file your tax return for the previous
year, you will report whether you and your family members had
health insurance coverage. The exact forms you will file have yet
to be determined, Sutton says. Details will be clarified as 2015
If you did not have health insurance in 2014 and also are not
exempt from the mandate, you will pay a tax penalty.
At first, the penalty will be small, but it will grow each
• In 2014, the penalty will be $95 per person or $285 per family
of three or more, or 1 percent of taxable income, whichever is
• In 2015: $325 per person or $975 per family of three or more,
or 2 percent of income, whichever is greater.
• In 2016: $695 per person or $2,085 per family of three or
more, or 2.5 percent of income, whichever is greater.
After that, the penalty will increase according to a
Sutton says the penalty will be subtracted from your income tax
refund. If you do not get a refund, the penalty likely will be
subtracted from any future refund the government owes you.
Some insurers have said the penalties are too low, but health
economist Austin Frakt, an assistant professor at Boston University
School of Medicine and School of Public Health, maintains they may
be high enough.
"Insurers may be correct that the penalties in the first two
years will be too low, but it is harder to make the case that the
fully phased-in penalties will be too low," he writes in a Jan. 17,
2013, article in the Journal of the American Medical
"The mandate comes in a carrot and stick format," says Steven
Zaleznick, executive director for consumer strategy for
HealthPocket, a Sunnyvale, Calif.-based company that compares and
ranks health plans.
The "carrots" include the tax credits that will help
moderate-income Americans afford health insurance as well as the
numerous consumer protections provided under the Affordable Care
Act. Starting in 2014, health insurers will not be allowed to
charge higher premiums for or reject applicants with health
In the early years, Zaleznick says, the carrots are more
important the stick.
"In 2014, it's really about making sure the plans come into the
marketplace and are understandable by consumers, and letting people
know there are subsidies in place to make it do-able," he says.