Obamacare Taxes, Penalties, and Credits

Will You Have to Pay Obamacare Taxes This Year?

Obamacare taxes
Sign up for health insurance or pay an additional income tax. Photo: Goldmund Lukic/Getty Images

The Patient Protection and Affordable Care Act of 2010, known as Obamacare, imposed a lot of changes to the tax law. Here's a summary of the major taxes, penalties, fines and tax credits. Find out how many of these go away under Trump's plan to repeal and replace Obamacare.

Penalty for Not Having Insurance

You will pay an additional tax if you don't have health insurance for at least nine months out of the year.

Starting in 2016, the tax was raised to 2.5 percent of your adjusted gross income.

The tax is capped at a maximum level. It will never be more than the average national cost of purchasing the Bronze health insurance plan on the exchanges. The Congressional Budget Office estimates this to be roughly $4,500 annually for individuals and $12,000 for families.

The tax will never be less than a minimum flat tax. That's $695 per adult and $347.50 per child, capped at $2,085 per family. After 2016, this minimum rises with the Consumer Price Index. (Source: "Affordable Care Act Tax Provisions," Internal Revenue Service. "Individual Mandate Fact Sheet," Blue Cross and Blue Shield. "How Much Is the Obamacare Tax?," Factcheck.org.)

Tax Benefits Reduced

If you itemize, you can only deduct the medical expenses that aren't covered by your health insurance and exceed 10 percent of your income. Prior to the ACA, you could deduct expenses that exceeded 7.5 percent of your income.

If you use a Health Savings Account or a similar account, you can only save $2,500 pre-tax. Over-the-counter drugs are now excluded as eligible flexible spending account medical expenses. If you don't use FSA funds for medical expenses, the tax penalty increases to 20 percent. For more, see IRS Guidance on HSAs and Health Savings Accounts.

Income Tax Raised

Do you make more than $200,000 a year? Do you file jointly as a married couple earning at least $250,000 per annum. Are you married but filing separately and earn at least $125,000 yearly? If you answered yes to any of these, you will pay extra income taxes. That's an additional 0.9 percent Medicare hospital tax on your income and self-employment profits above the stated thresholds. You are also taxed an extra 3.8 percent on investment income. These  include dividends and capital gains that are above the threshold. (Source: "IRS Net Investment Tax," IRS.gov. "Will You Pay the New Obamacare Tax?," Forbes.)

If your income is above the threshold, you may pay Obamacare taxes if you sell your home. The taxes apply if you make more than $250,000 as a single person or $500,000 as a married couple in capital gains. That means you've got to clear the applicable threshold amount after deducting the original purchase price and other investments that you've made. If you're selling investment property, you don't receive this exclusion. Obamacare tax treats it like any other capital gains. (Source: "Demystifying Obamacare Real Estate Tax," INMAN, February 14, 2013.)

Business Taxes 

Cadillac Tax - Companies who offer high-cost health insurance plans, called Cadillac plans, will be levied a 40 percent excise tax in 2018.

These plans have premiums of at least $10,200 for individuals or $27,500 for families. They are needed by those in dangerous jobs. It's been delayed until 2020. (Source: “Cadillac Tax Explained,” Kaiser Health News, March 18, 2010. "Tax Impacts of Obamacare," The Balance.)

Indoor Tanning Services. These are levied an excise tax of 10 percent of the actual cost of tanning. For details, see Tanning Salon Excise Taxes.

Medical Device Manufacturers. These companies pay a 2.3 percent excise tax on gross sales. Note: This tax has been suspended for 2016-2018. (Source: “IRS Medical Device Excise Tax.")

Prescription Drug Makers and Importers. These businesses are levied an annual fee. (Source: “Tax Impacts of Obamacare.")

Corporations. In 2014, the estimated tax payments factor increased by 15.75 percent for corporations with assets of at least $1 billion.

For details, see Healthcare Business Tax.

Health Insurance Companies. They can only deduct $500,000 for any one employee's compensation. (Source: “Tax Impacts of Obamacare”.) 

Tax Credits and Exemptions

If your income is 400 percent or less of the federal poverty level, you may qualify for a tax credit. To give you an idea, you'll get the credit if your income is around $47,000 or less if you're a single taxpayer. That would be up to $97,000 for a family of four. This varies by state. Find out if it applies to you at Will I Qualify to Save on Monthly Premiums?

If your income is 225 percent of the poverty level which is $29,000 for individuals or $60,000 for a family of four, you may also be able to save on your out-of-pocket costs. Any insurance company that sells on the exchange must reduce your costs to an affordable level. This varies by state. Find out if it applies to you at Out of Pocket Costs.

If your income is 138 percent or less of the poverty level, you won't have to pay the tax. The poverty point is $16,000 for an individual or $33,000 for a family of four. In most states, you will also be eligible for Medicaid. Find out if you qualify for Medicaid.

You also won't have to pay the tax if:

  • Your income is so low that coverage is unaffordable. 
  • You aren't required to file a tax return.
  • You're a member of an Indian tribe.
  • You participate in a healthcare sharing ministry or are a member of a religion that objects to health insurance.
  • You apply for a hardship exemption. For more, see What If You Don't Have Health Coverage.

Businesses

Less than 25 employees. You may qualify for a 50 percent tax credit for health insurance.  You are eligible if the average wage of your employees is less than $50,000 and you pay at least half of the premiums. That doesn't apply to the health insurance costs of owners.

Less than 50 employees. You can use the health insurance exchanges to help you find the cheapest plans.

50 or more employees. As of 2015, you must pay an excise tax of $2,000 per employee if you don't provide health insurance.  An exception applies for the first 30 employees. (Sources: “How Obamacare Affects Small Businesses,” Washington Post Factchecker. "Obamacare Tax Hikes," The Washington Post.)

All businesses - You can get federal financial assistance if you offer health insurance to early retirees from 55 to 64 years old. You can get a tax credit of 28 percent of drug costs if you provide prescription coverage for retired employees. For details, go to ERRP and Helping Small businesses with Obamacare. Here's more on How Obamacare Affects Small Businesses.

Charities

Tax-exempt employers can get a 35 percent tax credit as a refund under the same conditions as small businesses above. (See "Small Business Health Care Tax Credit," IRS.gov.) 

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More on Obamacare

For more on how to save money on Obamacare taxes, see my book The Ultimate Obamacare Handbook (2015 - 2016).