Affordable Care Act:
You may or may not be aware of the broad-reaching implementation of the health insurance mandate signed into law in 2010 (officially called the “Affordable Care Act”, or “Obamacare”) which requires most individuals to have ‘minimum essential coverage’. While this new Affordable Care Act (ACA) adds benefits to currently held health insurance plans and insures that no one can be denied health insurance for having any pre-existing conditions, it also mandates that individuals who did not have this minimum essential coverage were subject to a shared responsibility penalty, enforceable via your tax return starting in the 2014 tax year.
Obtaining Health Insurance in the Market Place:
To buy health insurance from the Health Insurance Marketplace, created from the ACA (further explained here) you have to enroll during the “open enrollment period”. The open enrollment period for 2016 starts October 1, 2015 and ends on December 7, 2015.
Obtaining a Health Savings Account (HSA):
If you don’t want to go through the Health Insurance Marketplace, another great option is opening up a Health Savings Account (HSA). Simply put, an HSA is a savings account set up exclusively for paying the qualified medical expenses of the account beneficiary (you) or the beneficiary’s spouse or dependents, using the same qualifications as listed above. The concept of health savings accounts are simple; they help you do what you know you should do-save money-plus, an HSA also allows you to invest it and spend it tax free! (Provided you spend the money on qualified medical expenses). An HSA is a tax-free investment account whose proceeds are earmarked for medical expenses. Eligible individuals must be covered under a high deductible health plan and not be covered Medicare. The application process is just as easy. Check your local listings for insurance brokers that can provide all of the paperwork and applications. The health insurance premiums are still deducted on page 1 of your tax return, and additionally, the contributions to your account are deductible as a separate line item on your tax return. Any funds left over in your account at the end of the year rollover automatically, providing tax-free growth for your own money! Check out IRS Pub. 969 for further detailed explanation of these tax-favored health plans.
Penalty for not having health insurance:
Under the ACA, if you decide against purchasing health insurance you are assessed a bottom-line penalty of the greater of either: a) flat dollar amount, per month, for every person in your household, or b) your annual income times the applicable percentage. The flat dollar amount is $325 per person for 2015 and $695 per person for 2016. The income percentage is 2% for 2015 and 2.5% for 2016. Note, the government has announced these penalty amounts and income percentage penalty amounts will be adjusted for inflation for years after 2016.
On June 25, 2015 the Supreme Court just recently affirmed the constitutionality of the law.
The tax benefits of Health Insurance:
As a self-employed individual you are in the fortunate position of being able to deduct 100% of your health insurance premiums, including dental and vision insurance. To explain, if you are an employee in a “traditional” job, you can deduct your health insurance premiums and most other medical expenses, providing that you itemize your deductions on Schedule A. In addition, there is a floor that is tied to your adjusted gross income (AGI) that you must reach in order for it to be deductible. So, for example, say your AGI is $100,000. If you are under 65 years of age, the medical deduction floor is 10% (7.5% for 65 and older). So, 10% of $100,000 = $10,000. If you spent $10,100 in insurance and medical expenses, only $100 would be deductible on your Schedule A.
Shared Economy CPA serves the growing tax and finances needs facing individuals working as 1099 Contractors. We are a team comprised of Certified Public Accountants and Enrolled Agents who are dedicated 24/7 to ensuring that everyone is equipped with the right knowledge and tools to thrive in this new economy.