affordable care act

[Ken]

I havn't been on here in awhile but I want to clear something up in my mind before tax season starts. I looked at some of the other posts but maybe I'm the only one who doesn't understand this. Say I have a married couple and only the husband has health insurance. Both of them work but the spouse has no insurance. Are they both penalized for not having health insurance? I have tried to educate myself by reading all I could find but I just cant find an answer to that particular problem. I would really appreciate any help anyone could give me.

[David1980]

Depends on how you look at it.

The penalty for 2015 is the higher of

2% of household income (above filing threshold)

Or

$325 per adult, $162.50 per child under 18, maximum $975.

Let's say the household income above filing threshold is $100,000. $50k taxpayer $50k spouse. The penalty would be $2,000 - 2% of $100k.

So you could say that under the flat dollar amount the penalty is only for those who do not have insurance where as under the percent of household income the penalty is on all incomes. With $325 penalty 2% would match up at household income above filing threshold of $16,250. Assuming MFJ return nobody over 65 filing threshold would be $20,600 so basically above $36,850 of income you're going to be paying the percent of household income penalty.

With multiple uninsured the flat rate penalty would be more than $325 and it would be a higher level of income where the percent is greater than flat rate.

[kathyc2]

Since one has coverage and one doesn't the penalty will likely be lower if MFS. The filing threshold is 4K as there is no allowance for the std deduction. The 2% would only be assessed on income of non-covered spouse. So, wages of 60K less 4K filing threshold = 1120.

Either way the "penalty" is also limited to be no more than national average lowest bronze plan (2,484 for 2015) for each non-covered person up to a maximum of 5 people.

[Bonnie]

When the worksheet is filled out, it is per person so the penalty would only apply to those without health insurance. Total would only be half of what it would be if both had health insurance

[kathyc2]

When the worksheet is filled out, it is per person so the penalty would only apply to those without health insurance. Total would only be half of what it would be if both had health insurance

That would depend on if the correct penalty is the flat dollar amount or the % of income. If flat dollar, then yes 1 covered and 1 not penalty is 1/2 of both not covered. However, if the penalty is based on household income for MFJ, the penalty is the same for 1 not covered as it is for 2 not covered.

The same math works on the flip side for the PTC. Since it's based on monthly contribution based on household income, 2 people can get coverage for the same cost as 1 if they choose the SLCSP. If they pick a plan that has a lower premium than SLCSP, it actually costs less to insure 2 people than it does to insure one.

[TaxGuyBill]

The same math works on the flip side for the PTC. Since it's based on monthly contribution based on household income, 2 people can get coverage for the same cost as 1 if they choose the SLCSP. If they pick a plan that has a lower premium than SLCSP, it actually costs less to insure 2 people than it does to insure one.

I'm not following you. Are you suggesting filing separately? Except for cases of spousal abuse or abandonment, a MFS return does not qualify for the Premium Tax Credit.

Or am I totally misinterpreting what you said?

[kathyc2]

I'm not following you. Are you suggesting filing separately? Except for cases of spousal abuse or abandonment, a MFS return does not qualify for the Premium Tax Credit.

Or am I totally misinterpreting what you said?

Yes, I believe you are misinterpreting.

Say a married couple has household MAGI of 60K. Working through Part 1 of 8962 and you will see that the monthly contribution works out to 478/mo. Used local rates for both of them being 60 years young. The cost of SLCSP for one person is 554, but they get 76 PTC to bring the net of policy less PTC to the 478 number. The cost of SLCSP for both people is 1108 but then the credit goes up to 630/mo and again brings the net cost for both of them to 478/mo.

Now, instead of picking the SLCSP they choose the lowest price bronze plan. The cost for one is 447 and they still get the 76 PTC which brings the net cost of policy to 371/mo. If they are both covered, the combined cost of premium for lowest price bronze is 894 and they still get the 630/mo PTC, bringing the net cost of policy for both of them down to 265/mo. The additional saving comes from the difference of SLCSP 554 less chosen plan of 447 or 107. Then is 2 people are covered instead of one, the 371 is reduced by the same difference again of 106 (371-265=106). It's crazy, but if you work the number through on Part 2 of 8962, you will see that it does work out that way.

[TaxGuyBill]

I see what you are saying now, thanks for the clarification.

I think that is one of the 'holes' in the ACA. As you said, the Premium Tax Credit brings the SLCSP Marketplace insurance to a specific cost, whether it covers one person or the entire family. However, it does not account for employer insurance if one spouse is paying for employer insurance. In your first example, the ACA/Premium Tax Credit says that $478 is "affordable" for a family of two. But if one spouse has Marketplace insurance and the has employer insurance, now they are paying the ''affordable" $478 PLUS the cost of Employer insurance.

[Burke]

And now I have a complete headache.......almost makes you want to refer PTC clients to someone else like EIC's!

[kathyc2]

And now I have a complete headache.......almost makes you want to refer PTC clients to someone else like EIC's!

LOL! I don't mind either EIC or PTC returns. PTC has opened up a lot of legal and fun planning opportunities!

[Burke]

And now I have a complete headache.......almost makes you want to refer PTC clients to someone else like EIC's. We are going to have a fun season!