Health-care coverage and tax implications

It was February when the woman walked into Alex Walker's North Philadelphia office to have her tax return done.

Finishing her return, the Jackson Hewitt tax preparer asked whether she had health insurance. The woman said she wasn't sure - things were changing at work.

"I told her to find out what her job was doing and come back and see me before March 31st," Walker said.

The woman returned last week, and Walker helped her fill out the application for coverage through the marketplace under the Affordable Care Act. A licensed insurance broker working with Jackson Hewitt then contacted the woman at home, helped her choose a plan, and completed the enrollment.

Throughout this tax season, Walker has routinely asked her customers whether they have insurance. It is part of a free national campaign by the tax service company to help people find coverage before Monday's open enrollment deadline. H&R Block has a similar setup.

"The law has kind of created a new intersection between two very complicated areas of health care and taxes," said Mark Ciaramitaro, H&R Block's vice president of health-care enrollment services. "We actually use their tax information, and, on the basis of that, give them a kind of tax-and-health insurance report."

The report includes a person's eligibility for subsidies, the highest cost he or she would pay for a silver plan (which comes with extra discounts at certain income levels), and eligibility for other government programs like Medicaid. The companies also inform their customers that if they don't buy health insurance they most likely will face a penalty next tax season.

"We are trying to help people make good choices based on their understanding of the complete picture," said Brian Haile, Jackson Hewitt's senior vice president for health policy. "If you chose not to get insurance that is absolutely fine as long as you make the choice understanding what the penalty will be and what your options are."

Tax experts say many people mistakenly believe the tax penalty is less than it is. The formula is complicated.

"The full expression of the penalty is $95 for an insured adult, or up to one percent of your income," Haile said. "I think that last part gets left off far too frequently."

People who earn too little to file a tax return are exempt. For everyone else, that one percent is applied to their income minus the threshold required to file a return - $10,150 for an individual and $20,300 for a married couple filing jointly.

So, the tax penalty for a couple - with one or both members uninsured - with $68,000 in modified adjusted gross income would be one percent of $47,700 ($68,000 minus $20,300): $477. The tax penalty doubles to two percent in 2015.

You're paying for the privilege of being uninsured," Haile said. "And, by the by, if you have any medical needs, you are going to pay 100 percent out of pocket."

There are other exemptions. Among them: having to pay more than 8 percent of your income for health insurance, being an undocumented immigrant, having a death in the family, and being a victim of domestic abuse.

And there are other tricky tax issues. For instance, people who are self-employed must estimate their 2014 income. Because the premium subsidy takes the form of a tax credit based on income, an underestimate would mean you'd have to make up the difference later. Ciaramitaro recommends basing your estimated income on your last two tax returns, and then playing it safe - and not applying the entire tax credit allotment to your premium payments.

"You don't have to take the entire tax credit," he said. "If there is uncertainty and you think you are going to make more, then you should probably take maybe 80 percent of your credit rather than 100 percent."

The Tax Policy Center posts an online tool to estimate tax penalties based on income and dependents: http://goo.gl/A4MKxh. Still, for many the decision to buy health insurance has nothing to do with penalties or estimated income. It comes down to whether they can afford the monthly premium payments. Families, especially those buying health insurance for the first time, have tight budgets where a few dollars makes a world of difference.

"We talk about $100 like it's not a lot of money," Ciaramitaro said. "But for some people, it's the difference between a meal and being able to pay their premiums."

Federal : 1-800-318-2596

Pennsylvania

Resources for Human Development : 855-668-9536

Congreso: 215-763-8870

Get Covered America operates in Pa. and N.J.: No hotline; find events at GetCoveredAmerica.org

In-Serve PA: 855-486-9331

The Health Federation of Philadelphia: 215-567-8001

Mental Health Association of Southeastern Pennsylvania: 267-507-3894

Philadelphia Health Access Network: 1-877-570-3642

New Jersey

Center for Family Services: 1-877-9ACCESS (1-877-922-2377)

EndText

RTCaca@verizon.net 215-836-0101