The U.S. health care system is about to collide with the U.S. tax system, so it's no surprise Americans are wondering what that will mean for their health care, their taxes, and most important, for themselves and their families.
For the estimated 48 million Americans who today do not have health insurance, the Affordable Care Act is intended to provide cost-effective coverage. An estimated 20 million low-income Americans will likely qualify for a new tax credit that will subsidize the purchase of health insurance.
And when the federal and state health care exchanges open on Oct. 1, there will most certainly be an overwhelming amount of information heaped on US taxpayers, who will need to sort out what it all means and if, or when, they need to take action.
For uninsured Americans, here's how to get started:
• File your 2012 tax return. The requirement to purchase health insurance will not impact your 2012 individual tax return. In fact, taxpayers are not required to purchase insurance until 2014 and won't notice any change related to the purchase of health insurance in their return until they file in 2015. If your employer already provides insurance, you may see that amount in box 12 of your 2012 W-2, but don't worry; this is for reporting purposes only. However, the information reported on your 2012 tax return will help the government determine your eligibility for an insurance subsidy, which you can use to purchase health insurance under the new law.
• Find out if you qualify for a tax credit subsidy and how much: The government will offer tax credits to help subsidize the cost of health insurance through the new Health Insurance Marketplaces (exchanges). If you have household income up to 400 percent of the federal poverty level (~ $45,000 for an individual and about $92,000 for a family of four in 2012), you may be eligible for the credit.
• Learn what health care plans make sense for you and your budget: There will be a variety of health plans available for you to choose from. The Affordable Care Act will set a standard for minimum essential health benefits that must be provided by insurers, and health care will be offered in four levels of plans (Bronze, Silver, Gold, and Platinum). You will be allowed to pick your plan and you may receive tax credits depending on your income. You will be responsible for paying the remainder of the premium. Co-pays and other outside costs will depend on the plan chosen. Your contribution is determined based on a sliding scale from 2 percent to 9.5 percent of household income if you are within 133-400 percent of the federal poverty level (about $30,600 - $92,000 for a family of four in 2012).
For example, if a family of four with a household income of $50,000 picks the silver plan (approximately $11,000), they may qualify for a subsidy of about $7,700 to help pay for health insurance. The family will be responsible for paying about $275 per month in insurance premiums to cover the remaining cost of the insurance plan.
• Be aware of possible penalties. Those who do not purchase health insurance will be subject to a penalty on their 2014 taxes and beyond. Some individuals will be exempt from the requirement to purchase coverage, including those with income below the IRS' requirements for filing taxes, those who qualify for religious reasons, and members of Indian tribes.
Educating yourself now will help you in October 2013, when state and federal Health Insurance Marketplaces open. To recap, uninsured Americans or people with unaffordable insurance will be able to:
• Compare the health plans that are available to them
• Apply for a tax credit to help pay for their health insurance
• Purchase health insurance
If you still have questions about the Affordable Care Act and how it will affect you, take a look at the TurboTax health care reform glossary that explains some of the key terms.