Posted by BRIAN PRZYSTUP & ASSOCIATES LLC

Healthcare Taxation: How will it affect you?

Healthcare Taxation: How will it affect you?

The income you file on your tax return will be used as the basis for your cost for Marketplace health insurance. You will also know if you’re eligible for the tax credits associated with Marketplace health coverage base on your reported income. As a way for the government to provide assistance, the tax system is being used by means of a tax credit, for people who might not be able to afford insurance when they need it. 

What is the minimum essential coverage?

According to The Affordable Care Act, the responsibility for health insurance must be shared by everyone. The government is able to monitor your coverage with the help of your income tax return. To acquire the minimal essential healthcare coverage, the following venues are available:

  • The Healthcare Marketplace Health Insurance
  • Employer Health Insurance Coverage
  • A government-sponsored program like Medicare or Medicaid
  • A health insurance policy offered directly by an insurance company
  • Department of Health and Human Services approved plan coverage

How to use your modified adjusted gross income?

Estimating your household’s gross income is a must if you choose to purchase a health plan through the Marketplace. This is referred to as your modified adjusted gross income and all income from all sources including your spouse (if married) is included. Your tax return must show this amount reflecting your income. Your eligibility for lower-cost health insurance premiums is determined by this. Make sure you include the following when filling out the Marketplace application:

  • Salaries and wages, including tips
  • Social Security payments
  • Net Income from self-employment and business income
  • Alimony payments
  • Unemployment payments

What is the individual shared responsibility provision for 2018 tax years?

If you decide not to purchase health insurance coverage for tax years after 2019, an individual shared responsibility payment with your tax return will be required from you. The percentage of the declared amount of income on your tax return or a flat dollar amount will determine your annual payment. The calculation of the 2018 individual shared responsibility payment is the greater of:

  • $695 per adult or a family flat dollar amount, and $347.50 for each child with a maximum amount of $2,085, or;
  • 2.5 percent of the income of your household above the threshold of your filing status.

The national average of the Marketplace’s bronze level premium is where the amount is capped.

You may want to consult a tax professional to determine whether you are exempt from the tax penalty or from the requirement to purchase health insurance. You’ll know if you’re eligible to waive the tax penalty entirely and apply for a health care exemption if you have an experienced tax professional to guide you through.

Premium Tax Credit Eligibility

If you acquired your health insurance from the Marketplace, you may be eligible to receive a premium tax credit. Your monthly premium insurance payments may be assisted by this credit and it is determined by the information on your tax return. In order to be eligible, you must:

  • Purchase your health insurance through the Marketplace
  • Not be eligible for a plan offered by the government or your employer.
  • Not be another person’s claimed dependent
  • Not go beyond certain income limits
  • Not have filed under the status married filing separately except under certain circumstances.

Exclusion for Employer Contributions to Health Insurance

There are no income taxes for employers and most employee contributions to health insurance premiums. In the fiscal year 2018, The Joint Committee on Taxation estimates that the income tax expenditure on the exclusion for employer-sponsored health insurance was over $146 billion. When calculating payroll taxes, employer contributions for health insurance premiums are also excluded from employees’ taxable wages. In 2018, the exclusion reduced government revenue by $280 billion including its impact on both income and payroll taxes.

Since healthcare is becoming such big business, it may eventually face tax reform just as it has faced other reforms. Although healthcare taxation is different from taxation of other industries, the ever-evolving and growing system may cause many of these difference to disappear. As advised above, you may need to consult a tax professional to help you deal with the complex healthcare taxation as well as waive the tax penalty entirely if you turn out to be eligible.


BRIAN PRZYSTUP & ASSOCIATES LLC
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