I know one of the things that puzzles me most about the new health care reform legislation is the penalty to those who do not carry health care. It seems cruel to penalize people who cannot afford healthcare. Isn’t it penalty enough not to have health coverage for your loved ones? So I looked up how this penalty will work; the following is what I found:
The new law contains an “individual mandate”—a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax penalty. Under the new law, those without qualifying health coverage will pay a tax penalty of the greater of: (a) $695 per year, up to a maximum of three times that amount ($2,085) per family, or (b) 2.5% of household income over the threshold amount of income required for income tax return filing. The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee or 1.0% of taxable income in 2014, 2.0% of taxable income in 2015, and 2.5% of taxable income in 2016. Beginning after 2016, the penalty will be increased annually by a cost-of-living adjustment. Exemptions will be granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, aliens not lawfully present in the U.S., incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of household income, those with incomes below the tax filing threshold (in 2010 the threshold for taxpayers under age 65 is $9,350 for singles and $18,700 for couples), and those residing outside of the U.S.
The good news is the first year the penalty takes effect will be 2014 and it will only be $95 it won’t be until 2016 that the $695 for a single person or $2,085 for a family begins. And I am glad to see they added an exemption clause that covers just about everything. I would imagine 99.9% of the folks who don’t have enough money to afford health care will qualify for the financial hardship exemption and not pay the penalty. But it does raise the question where is the information going to be reported? My assumption is a new form for tax filing will need to be created by 2014!