The United States Supreme Court ruled in a 5-4 decision that the controversial “individual mandate” in the Affordable Care Act is constitutional because the penalty assessed on those without health insurance is actually a tax. So, how much will you owe when this law takes effect in 2014?

• If your employer provides you with the minimum health care coverage required by the law, you won’t owe any additional amount.
• If you don’t have to file an income tax return because you make less than the filing threshold (e.g., $9,500 for an individual in 2011), you won’t be assessed the new tax, and you will likely be covered under the expanded Medicaid program.
• If you are self-employed or work for someone who doesn’t provide you with the minimum health care coverage, you will either have to purchase health insurance or pay an additional tax liability on your 2014 income tax return.

So how much will you likely have to pay if you fall under the last group? Let’s look at two examples.

EXAMPLE 1: If you are single, 36 years old (the median age in the United States) and earn $43,143 (the median income in the United States), you will not qualify for any of the government subsidies built into the insurance exchanges created by the law. The Congressional Budget Office projects the total insurance exchange premium for a single individual will be $4,043. Therefore, you will need to either purchase health insurance for $4,043 or pay the IRS a tax of $331 on your 2014 income tax return. So, the choice will be to pay an insurance company $4,043 or see your income tax bill increase approximately 7.28%.

EXAMPLE 2: If you are married with two children, 36 years old (the median age in the United States) and earn $68,728 (the median household income in the United States), you will qualify for a $4,862 government subsidy if you elect to use the insurance exchanges created by the law. The Congressional Budget Office projects the total insurance exchange premium for a family of 4 will be $11,259. Therefore, you will need to either purchase health insurance for $6,397 ($11,259 – $4,862 subsidy) or pay the IRS a tax of $409 on your 2014 income tax return. So, the choice will be to pay an insurance company $6,397 or see your income tax bill increase approximately 7.73%.

If you are an uninsured member of the middle class like the taxpayers in the two preceding examples, the Affordable Care Act will cost you money beginning in 2014. You will either have to purchase health insurance (it’s still not free) or pay the tax (which will double in 2015).

Contact Flexible Accounting Services of the Triangle to find out how this law affects you or your business.