Smart SpendingSmart Spending

Obamacare and your 2012 tax return

Your adjusted gross income for 2012 could have a profound impact on how much you pay for health insurance next year if you don't get coverage through your workplace or a government program.

By MSN Money Partner Feb 5, 2013 3:14PM

This post comes from Jonnelle Marte at partner site MarketWatch.


MarketWatch logoStarting next January, the Affordable Care Act mandates that every American have health coverage, and those who remain uninsured will pay a penalty. The extent to which one is eligible for federal subsidies to buy insurance, and the penalties for failing to comply with the mandate, will both be determined using one number: the adjusted income reported to the Internal Revenue Service this year.


Image: Medical doctor (© Digital Vision/Getty Images)"So much of the Affordable Care Act is being implemented through the tax code," says Kathy Pickering, the executive director of the Tax Institute at H&R Block. And for many taxpayers, "their tax situation will factor into health care decisions as well," she says.


The penalty, which was upheld as a tax by the U.S. Supreme Court in June, will vary per family based on their size and income. The fee starts at $95 per person next year, or 1% of household income above the minimum threshold for filing a tax return -- whichever is greater.


And the penalty is scheduled to increase each year to $695 per person in 2016, or 2.5% of income. (After that, the penalty will be adjusted each year for inflation.)


For a single person with $50,000 in taxable earnings, the charge would start at $400 next year, estimates H&R Block. And for a family of four with two children and a household income of $100,000, forgoing insurance would add another $800 to their tax bill -- a sum that would be deducted from any refunds. (The penalty is cut in half for children.)


The government will provide subsidies, which would cap how much families spend on insurance premiums to a portion of their income. The subsidies will be available to those earning incomes of up to 400% of the poverty rate, which works out to roughly $45,000 for an individual and $92,000 for a family of four. (See the H&R Block Health Care Estimator.) 

To be sure, people who get health insurance through their employers or through a government program like Medicaid will not be impacted by the penalty. But those shopping for insurance on the individual market may still opt to pay the penalty, experts say. Annual health insurance premiums for people working at small firms averaged $5,600 for individuals and $15,200 for families in 2012, according to the Kaiser Family Foundation. (Of course, the decision to remain uninsured could end up being far more expensive if individuals face unexpected medical emergencies.)


In order to avoid the penalty, taxpayers will need to buy the minimum amount of health insurance required under the health care law. One way to meet that amount is to purchase a plan offered in the individual insurance exchanges being set up by health care reform, where individuals or small-business employees can shop for health coverage -- possibly with the help of federal subsidies.


Levels of coverage will vary, and some plans will have to offer essential benefits including hospital, emergency, pediatric benefits and other services. Dental-only plans, for example, won't be enough to avoid the penalty.


Tax preparers say clients are already asking questions about how health care reform will impact their tax bills -- and vice versa. At H&R Block, preparers are calculating what a taxpayer's insurance costs might be by using their returns to estimate the federal subsidy they might receive. They're also talking to families about what penalty they would have to pay over the years if they decide not to buy insurance.


Mark Steber, chief tax officer for Jackson Hewitt Tax Service, says they are fielding questions from taxpayers on the penalty and how insurance subsidies will work, and that the firm is evaluating if it will add a health care component to its tax prep services.


More on MarketWatch and MSN Money:

Feb 6, 2013 8:28PM
Those of us who work and support ourselves are getting screwed big time....We have to show proof of insurance starting next year but if you're barely getting by as it is what do you do....Obama needs to wake up and realize we don't have it as good as he does....I remember him making a comment that if we go to the emergency room without insurance whose fault is that? He said he wasn't going to pay for our stupidity...THANKS ALOT PREZ!!!!!!!!!!!!!!!!!
Feb 6, 2013 8:28PM

for all of you who gives the thumbs down we know your obummer loves and obamass sniffers

Feb 6, 2013 8:23PM
Where are all the obamanites when the facts are right in front of them? They run and hide because they have no excuse for this worthless excuse of a President. Everyone in the White House needs to go. We need a complete governement over haul and get these clowns out of office. Everyone down to the ganitors are corrupt and don't give a crap about us. That's the CHANGE we should've voted for and the only HOPE we have!!!!!!
Feb 6, 2013 8:18PM
We all need to go on a riot.  Our government is out of control. 
Feb 6, 2013 8:16PM
I pay over 300.00 a month for insurance just for me.  Cuts out any extra I have, so I am basically living on 900.00 a month.  And with student loans, insurance, house payment, utilities, food and gas, just to mention a few: I drive a vehicle with 230,000 miles on and it is fixing to crater, I do not make enough after all the above to make a car payment. and no public transportation.

Thank you Obama and Congress
Feb 6, 2013 8:15PM
You need jobs that pay decent wages in order to afford health care.  No jobs, no money, health care is the last thing on the list  after a roof over your head, food, clothes and transportation. 
This govt. is screwed and whats worse, they screwed the middle class and working person the most.
Feb 6, 2013 8:09PM
YOU AMERICANS do not understand how the new health care works, it's really simple, working salaried people will pay for the benefits given to illegal inmigrants, unemployed, "poor people" will also get the benefit that you will be paying for. SUKERS, you wanted change, you got it, so what the hell are you complaining about, sock it you fools.
Feb 6, 2013 8:08PM
Sounds like the middle class are getting hit again. The Government has us fighting with each other thinking we are repubs or dems, we need to organize and and fight this ourage!
Feb 6, 2013 8:00PM
Mr, Obama is not an angel. He has no authority from God to punish the people for their sins. He is neither a God and has no authority to change any religious laws. Are we be controlled by the stupid USA president or the God we always trusted? We can not make a stupid human to be a God. All fake Gods need to be destroyed by every body. Unless Obama severs that he is the a biggest God.
Feb 6, 2013 7:58PM

Plain and simple, If you voted for obama shut up and pay your dues, you have no right to complain, shut your mouths and stop your whining. act like the big tough guy now. you were all warned, you were too stupid to listen, you deserve what you have comming to you. I will laugh at you now. ha ha ha ha.

Feb 6, 2013 7:55PM

I see a lot of people deny voting for this "skeet shooter n chief" but he got elected by more than 50% of the vote and you all knew exactly what you were getting. It's going to get worse and worse and he will blame George Bush for everything even when his term is up. It's a terrible plan, you all could have voted the other way and now we're all stuck. The poor weren't paying medical bills bills to begin with and it won't change  

Feb 6, 2013 7:46PM

If one didn't fall for Barry's lies should one be required to pay for them?


mmm, mmm, mmm!

Feb 6, 2013 7:42PM
It is the liberals who do not give or tip, they just give our money. Romney gave 23% of his income to charity, Obama gave 2%.
Feb 6, 2013 7:42PM
I wonder what they will make us buy next ? So much for freedom.
Feb 6, 2013 7:37PM
Republicans should be banned from getting there health insurance refunds next year, it just isn't right that they should cry like little babies for 3 years and then except their Obamacare refund, but I guess stupid is as stupid does.
Feb 6, 2013 7:25PM
While you all bitch and moan and groan about Obamacare--we in Massachusetts had that same type of forced healthcare stuffed down our throats by Romney, remember him? The mormon who ran and lost and the same one that tried to hush up the fact that his Massachusetts Health care bill  inspired count your blessings--I for one voted for Obama and I am happy with my vote
Feb 6, 2013 7:24PM
I don't care one way or the other, I just wrote off the Federal Government on my tax return as my dependent and saved myself $17 trillion.
Feb 6, 2013 7:22PM
I am loving all these hateful responses...just proves that you folks really are as ignorant as I always knew you were...enjoy your tea party, dont forget to tip your servers!
Feb 6, 2013 7:21PM
You people elected this Idiot to the Presidency now suffer, there are no Freebies & NO jobs
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.