Now that we have welcomed in the New Year and 2015 has begun, we also welcome health insurance to the list of due dates, like taxes and accounting, and more taxes. For individuals and employers not insured or providing insurance, penalties can apply due to the Affordable Care Act. First let’s walk through employer penalties, followed by individual penalties.
Under the Affordable Care Act, the Employer Shared Responsibility Provision mandates employers, with 50 full-time employees (FTE), to provide their employees with health coverage. If an employer does not provide coverage or provides coverage that doesn’t offer “minimum value”, a $2,000 annual fee must be paid monthly per employee. FTE and “minimum value” are defined below:
- FTE: Equals the total number of full-time employees plus the combined number of Part-time employee hours divided by 30. Employees who work at least 30 hours per week, or whose service hours equal at least 130 hours a month for more than 120 days in a year are considered full-time.
- Minimum Value: Includes all government, job-based, and private insurance.
The annual fee for not having insurance in 2015 is $325 per adult and $162.50 per child (up to $975 for a family); or 2% of your household income above the tax return filing threshold for your filing status, whichever is greater. You’ll pay 1/12 of the total fee for each full month a family member went without coverage or an exemption.
The penalty for not having coverage will be paid on your Federal Income Tax Returns, and is only paid for full months you or a family member went without coverage.
As usual there are a few exemptions for both individuals and employers, which we will walk through briefly.
- Employers with 49 FTE or less are not required to provide health insurance options, or pay the $2,000 penalty per employee.
- Should an employer pay the penalties in 2015, the first 80 employees are excluded from the penalty. For 2016 and on, the first 30 employees will be excluded.
- There are also current-year limitations. Small businesses with 50 to 99 FTE will need to start insuring workers by 2016. Those with a 100 or more FTE and average annual wages above $250,000, will need to insure 70% of workers by 2015 and 95% by 2016.
The Individual mandate for health insurance has the following exemptions that release the penalty fee for not having “minimum essential coverage.”
- If you’re uninsured for less than 3 months of the year. In other words, you are allowed up to three consecutive months in a row without coverage each year. Also, having coverage for at least one day in a month counts as coverage.
- If the lowest-priced coverage available to you costs more than 8% of your household income.
- If you don’t have to file a tax return because your income is too low.
I hope understanding the penalties for not having health insurance offers some guidance for what is best for you and/or your business. If you were caught off guard this year, make sure it’s part of your upcoming New Year’s resolutions.