Save on Taxes Next Year by Getting Health Coverage Now

If 2014 taught us nothing else, it’s that our tax reporting may never be as simple (or as cheap) as it once was.

If 2014 taught us nothing else, it's that our tax reporting may never be as simple (or as cheap) as it once was. The Affordable Care Act (ACA), implemented to ensure obtainable health care for all Americans, has a price tag for anyone who doesn't participate. And while the penalty for taxpayers who didn't at least secure a private or employer-sponsored plan was marginal for 2014, the cost will only go up from here on out – beginning with 2015.

The Past is Prologue

If you had health insurance for you and your family in 2014, your ACA reporting during tax time was pretty straight-forward. In all likelihood, you checked the box confirming your coverage and completed your return without a cold sweat. Assuming that you're retaining coverage for 2015, next year should be just as easy. Alternatively, if you didn't have an approved plan, you were charged a penalty of either 1% of your annual household income or $95 per household member – whichever was greater (chances are, this was 1% for you). While this cost may have been more or less manageable in comparison to the actual cost of annual coverage, it was merely a precursor for an ever-increasing rate.

Where You Stand Today

With over half the year already over, your time to act is rapidly shrinking (again, if you've got valid health coverage, sit back and relax). If you don't, consider this year's increases: $325 per member of your household OR 2% of your annual household income for 2015. The good news is that if you obtain coverage now, you'll be responsible for paying only a prorated amount of the penalty. The longer you wait, though, the more you will pay next year.

Planning for 2016 Now

Let's assume that you choose not to obtain health coverage and you also have no intention of paying the penalty. Let's also assume for a moment that you'll be due a tax refund next year. You can subtract the cost of the penalty from your refund total, as the IRS will offset what you're due. In other words, if you owe $1000 for the ACA penalty and you are expecting to get back $2500 from your tax return, you'll only receive $1500. The bad news? This penalty will increase again in 2016 and once more in 2017.

Habits and Contingencies

Your best course of action is to get health coverage as soon as possible to avoid burdensome fees next year. If you choose not to go through the government exchange for your plan, you should talk to your employer or research private insurance providers. You'll have the benefit of sustaining coverage without having to worry about writing a check to Uncle Sam next April. Alternatively, if you find yourself in hot water over a tax liability, or you're not sure how to reconcile the cost of insurance with respect to the ACA penalty, consider talking to a licensed tax professional. Planning for your future is a great habit to get into, but if you're ultimately in over your head when the times comes, defer to an experienced professional.

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