Individuals and the Affordable Care Act

The 2010 health care reform legislation was landmark legislation that affects all individuals in some way. Besides the obvious effect this massive legislation has on health care, there are many significant provisions of the legislation that affect an individual’s income taxes. Some provisions of this law were effective in 2010, many are effective beginning in 2014 or 2015, and others are not effective for several years. In fact, the full range of provisions will not take effect until 2018. This letter is a brief look at the major provisions that affect individuals by 2015. Our firm is ready to assist you with any questions you may have, and help you understand how this legislation affects your taxes and finances. Please give us a call if you want additional information on any aspect of the law’s provisions.

Following are provisions that affect individuals.

Individual Mandate for Health Coverage. Most U.S. citizens and legal residents (i.e. applicable individuals) are required to have minimum essential health insurance coverage every month beginning on or after January 1, 2014. Those who do not have such health insurance are subject to a penalty for each month they do not have minimum essential coverage. The penalty is the greater of a flat fee amount (for each individual not covered by health insurance) or a percentage of household income over a threshold amount.

Certain low-income individuals and individuals who meet certain financial hardship criteria are exempt from the mandate. In addition, members of an Indian tribe and individuals who are members of certain religious sects or members of certain health care sharing ministries are exempt from the mandate.

Expanded Dependent Coverage in Health Plans. Health insurance plans that offer coverage for dependent children must continue to offer that coverage until the child reaches age 26. This means that an adult child can continue to be covered under a parent’s health insurance until age 26 even if the individual does not qualify as a dependent for income tax purposes. Additionally, health insurance coverage for an adult child who has not turned age 27 as of the end of the parent’s tax year (generally, a calendar year) is not taxable to the parent. These provisions apply to self-employed individuals also, so they can take an above-the-line deduction for the health insurance costs of qualifying adult children.

Premium Assistance Credits and Cost-sharing-reduction Subsidies. To assist individuals in meeting the mandate for having minimum essential health insurance coverage, premium assistance credits and cost-sharing-reduction subsidies are available for some moderate-income and low-income individuals who purchase insurance in the individual market through the state insurance marketplaces. Individuals can elect to have this credit payable in advance directly to the insurer.

The premium assistance credit is available (on a sliding scale basis) for individuals and families with income up to 400% of the federal poverty line ($46,680 for an individual or $95,400 for a family of four, using 2014 poverty line figures) who are not eligible for Medicaid, CHIP, a state or local public health program, employer-sponsored insurance that is both affordable and provides a certain minimum value, or other acceptable coverage.

Additionally, many of these individuals are eligible for a cost-sharing-reduction subsidy that will assist them in paying any deductibles or other cost-sharing payments required under their health insurance coverage.

That is a brief highlight of the major provisions of the health care legislation that affect individuals. Of course, with legislation this expansive, additional guidance from the IRS, Department of Labor (DOL), and Department of Health and Human Services (HHS) is being issued on a regular basis. We will keep you informed of major announcements from these agencies.

If you would like more details about any of these provisions or have questions about the effects of these provisions to you and your family, please do not hesitate to call.