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By Keith Speights, Motley Fool
America, get ready for some “shared responsibility.”
That’s the rather benign-sounding term used by the Affordable Care Act, commonly known as Obamacare, to describe the financial penalties that millions of individuals in the U.S. could face if they don’t purchase health insurance. Here are three important things you need to know about the Obamacare penalties before 2014.
1. Do the penalties apply to you?
If you already have health insurance through your employer, you’re off the hook. If you don’t, you could be subject to Obamacare penalties if you don’t have health insurance for most of next year.
Even if you aren’t insured for most of 2014, there’s still a reasonable chance that the penalties won’t apply to you. The Congressional Budget Office estimates that of the 30 million Americans who likely won’t have coverage in 2016, only 6 million or so will be subject to financial penalties.
Several groups of people are exempted by law from paying the Obamcare penalties. If the lowest-cost insurance plan is more than 8% of your income, for example, you won’t be stuck with a fine if you don’t obtain coverage. You can also apply for economic hardship exemptions.
If receiving insurance benefits runs counter to your religious beliefs (provided you belong to a religious group recognized by the federal government), no penalties are applicable for you. If you opt to join a federally recognized health care sharing ministry, you can be exempted from paying the penalties.
You’re not subject to Obamacare penalties if you’re a Native American or if you’re not an American citizen. In prison? Don’t worry — at least about paying financial penalties for failing to obtain health insurance.
2. When must you have insurance to avoid the penalty?
While the open enrollment period for the Obamacare health insurance exchanges extends through March 31, 2014, there’s a catch. If you don’t purchase a plan by the end of February, you’ll get stuck with a penalty.
Obamacare mandates that individuals who go without coverage for three consecutive months must pay a penalty. Enrolling in an insurance plan during the first half of March gets you an effective date of April 1. Signing up in the latter part of March pushes that effective date out to May. Either way, you would go three months in a row without coverage — and therefore face the penalty.
3. How much will the penalty cost if you didn’t have coverage?
The calculations can get a little confusing, but here goes. For 2014, the minimum penalty will be $95 per uninsured adult and $47.50 per child, up to $285 for a family. You could pay more, though, depending on how much money you make.
Take your household income, then subtract $20,000 if you have a family and $10,000 if you don’t. Multiply that number by 1%. You’ll owe the greater of the resulting amount and the minimum penalty mentioned above. Probably. The exception to this rule is that no one will be required to pay more than the average annual premium for a bronze plan (lowest-cost option) in Obamacare.
There’s still some good news and bad news. The good news is that if you have insurance for part of the year, your penalty will be prorated. The bad news? Penalties increase annually through 2016.
You might also want to know about one other minor detail about the Obamacare penalties: The IRS can’t go after taxpayers who don’t pay up. That’s right — the Affordable Care Act didn’t include any provisions for the tax agency to enforce collection of the penalties.
2014 tax returns, which aren’t due until April 2015, will include a spot for taxpayers to provide information about health insurance. If any penalties apply, the IRS will subtract the penalty amount out of any refund owed. If you don’t get a refund or the penalty is greater than your refund, the agency will want you to mail a check to them or send funds electronically.
What happens if you decide not to send the money? The IRS could take it out of any future tax refunds. If your taxes are withheld through your employer, the agency could also get the money through that route. However, it can’t press criminal charges or assess further financial penalties for not paying. The IRS also can’t place a lien on property as it can when seeking payment of overdue taxes.
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