A Quick Look at the ACA and Its Tax Implications


Love It or Hate It, The Affordable Care Act Has Tax Considerations For All

A Quick Review

The Affordable Care Act, or “Obamacare” has recently been in the news in light of a recent supreme court decision that protected ACA subsidies for over 6.4 million Americans. The ACA is one of the most polarizing issues of our time, with both sides offering impassioned arguments for or against it. Here is a brief rundown of the key components of the ACA:

  • Under the law, individuals who can afford to do do are required to purchase health care coverage for themselves and/or their families. Those who do not will face a penalty: a flat rate beginning at $95.00 for individual taxpayers, or 1% of income, whichever is higher. Certain groups such as undocumented immigrants, incarcerated people and certain faith-based groups are exempt.
  • An estimated 17 million people under the age of 65 are eligible for Medicaid (Medi-Cal in CA) benefits. Medicaid expansion states receive additional ACA funds to enact Medicaid programs for eligible citizens and to cover provider reimbursements.
  • Federal tax credits are available to those who are within 100% to 400% of the federal poverty line ($11,500 to $46,000 annually for a single person, and between $24,000 to $94,000 for a family of four, based on 2014 figures). Individuals below the federal poverty line who live in Medicaid expansion states will receive Medicaid benefits.
  • As of 2014, it is against the law for an insurer to use a pre-existing condition to establish, increase, or adjust insurance rates. People with a pre-existing condition also can’t be denied insurance coverage under the ACA.

Tax Implications

Under the ACA, a 3.8% tax will be imposed on net investment income. It is based on the lesser of these two scenarios:

  • Your net investment income, or
  • The amount in which your Modified Adjusted Gross Income (MAGI) exceeds the threshold ($250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for everyone else).

The tax credits for eligible individuals and families is determined on a sliding scale at the time you purchase your health insurance policy using the marketplace website. You have the option of claiming some or all of the credit in advance, or you may claim it in full at the time you file your tax return.

The ACA can be confusing if this is your first year purchasing insurance on the marketplace or exchange. If you have been on your parents’ policy or on Medicaid in previous years, the ins and outs of the ACA and its tax implications can be intimidating. A qualfied tax pro can help you with your ACA tax-related questions and prepare your personal or business tax return on your behalf.

Love it or hate it, the ACA is part of the healthcare and tax landscape. If you do have any questions regarding related tax credits, tax liabilities or penalties, having a qualified tax pro in your corner is your best bet. To get in touch with one of our tax prep professionals, give us a call or click the white “start chat” button on the upper right-hand corner of any of our webpages.