TaxAlerts Tax Article
July 2012 | Written by: Karen Reed
On June 28, 2012, the Supreme Court held that the keystone provision of the Patient Protection and Affordable Care Act – the individual mandate – is constitutional and will remain in effect. The underlying argument of the majority opinion, that the government has the right to tax individuals for not purchasing health insurance, was a surprising twist for many who believed the constitutional issue under scrutiny was interstate trade.
Beginning in 2014, all individuals will be required to maintain what the bill refers to as minimum essential coverage. The monthly penalty – or tax – that will be imposed on those who fail to carry the minimum essential coverage will be 1/12 per month of the greater of a flat dollar amount or a percentage of income. The flat dollar and percentage of income amounts will start low – at 1% and capping at $285 per family – but rise to 2.5% and capping at $695 by 2016. Joint filers will be jointly and individually liable for any penalty.
A refundable tax credit will be available to help certain lower income taxpayers pay for health insurance premiums. The new Premium Assistance Tax Credit will be determined based on an individual’s income as compared with the federal poverty level.
Individuals with gross incomes below the filing requirement will be exempt from the penalty. An exemption also will apply to religious objectors, members of Native American tribes, incarcerated individuals, and individuals with certain hardships.
Starting in 2013, higher income individuals will pay an additional Medicare tax of 0.9 percent on the amount of earned income (such as W-2 wages and self–employment income) above $200,000 and $250,000 for joint filers. The threshold amount for married individuals filing separately will be $125,000. Individuals at higher income levels also will be subject to an unearned income Medicare contribution tax of 3.8%. The tax will be owed on the lesser of net investment income (such as stock sales) or amounts exceeding the income threshold.