Be aware of the individual penalty in the health care reform law
Are you familiar with the individual shared responsibility payment? This penalty for not obtaining and maintaining a minimum level of health insurance is scheduled to begin in 2014, and is due with the tax return you’ll file in 2015.
That’s a long way off, so why think about it now? One reason: Today’s decisions will affect tomorrow’s penalties. For example, when you choose to buy a policy meeting minimum requirements and you maintain coverage for the entire year, no penalty is due. That’s true even if you experience a gap in coverage of less than three months.
Thinking of not buying health insurance? Unless you qualify for one of nine exemptions, you’ll owe the penalty. For 2014, the minimum per-adult penalty is $95. The actual amount you’ll pay can be higher, and is based on the number of months you’re uninsured, the amount of your income, and the national average premium for a “bronze-level” plan.
If you fail to pay the penalty with your return, the amount you owe can be withheld from any tax refund due. Though the IRS is prohibited from garnishing your wages or filing a lien for an unpaid penalty, interest will accrue on the balance.
The individual shared responsibility payment is scheduled to increase over time. Give us a call to discuss whether the penalty or one of the exemptions will apply to you.
Health Savings Accounts: An option worth considering
While the way you shop for a health insurance policy may be changing, the tax rules for combining your policy with a savings account remain in place. The combination of a high-deductible health policy and tax-advantaged savings is called a Health Savings Account (HSA).
To qualify for an HSA, you or your employer must first purchase a health insurance plan with a high deductible. The deductible is the portion of health care expenses you’ll pay out of pocket before your policy begins to pick up the bills. For 2014, a high-deductible plan is one with an annual deductible of at least $1,250 for individual coverage and $2,500 for family coverage. With an HSA, the maximum annual expenses you can be required to pay are limited to $6,350 for individual coverage and $12,700 for family coverage.
Once your health insurance plan is in place, you open an HSA with a bank or other custodian. The idea is this: You deposit money in the account to pay health care costs incurred before you satisfy the policy deductible. Maximum contributions for 2014 are $3,300 for individual coverage and $6,550 for family coverage. Catch-up contributions when you’re age 55 or older are $1,000.
Here’s the tax benefit: You put money in your HSA on a pre-tax basis when your employer offers the HSA, or you take an above-the-line tax deduction if you fund the account yourself.
Additionally, any account earnings such as interest or dividends grow tax-free. Amounts you take from the account are also tax-free when you use the withdrawals to pay qualified medical expenses. There’s a 20% penalty for withdrawals you use for nonmedical costs.
Give us a call as you shop for tax-advantaged ways to meet your health insurance requirements. We have the details you need to make an informed decision.
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