Obamacare Tax Penalty
Beginning in 2014 you may be subject to the obamacare tax penalty absent a qualified exemption. You will be required to obtain health insurance. If you don’t, you will be subject to a penalty of 1% of your annual income or $95, whichever is greater. In 2015, the penalty increases to the greater of 2% of annual income or $325 per person. The following year it becomes the greater of 2.5% of income or $695 per person. After 2016, it will be indexed to the cost of living. The maximum penalty is capped at three times the per person penalty. If you earn $28,500 in 2014, 1% of your income would equal $285. If you earn more than this your maximum penalty would remain the same. All penalties are due and payable with your annual federal income tax return.
Do penalties apply to you?
- If you do not have health insurance for most of 2014, that meets the minimum standards, then you will probably owe the Obamacare tax penaly. But, if the lowest cost insurance plan is more than 8% of your income you won’t be fined if you don’t obtain coverage. You can also apply for economic hardship exemptions.
- If receiving insurance benefits runs counter to your religious beliefs (provided that you belong to a religious group recognized by the federal government), you will not have to pay penalties. If you opt to join a federally recognized health care sharing ministry, you can be exempted from paying the penalties.
- If you are a Native American or if you are not an American citizen you don’t have to worry about paying the tax penalties.
When you need to have insurance?
If you do not insurance by the end of February 2014 you’ll get stuck with a penalty.
How will the IRS collect the tax penalty?
The IRS cannot put you in jail or garnish your wages if you do not pay your Obamacare tax penalty. At this time, the only way the IRS can collect is if you are due a refund. They can deduct the penalty from this year’s and future refunds. This is of course if the Obamacare law remains the same. But, don’t breathe a sigh of relief just yet. Because the penalty is not paid interest can accrue. Also, Congress last year explored the pros and cons of reporting all delinquent taxes to credit bureaus. Theoretically, speaking if you never get a refund then you won’t pay the penalty but you may have interest accrue. You will need to be vigilant about your with holdings or estimated tax payments in order to take advantage of the IRS’s limited collection capabilities. Making tax planning a very important part of your financial affairs.