Obamacare and Taxes for Freelancers

Obamacare and Taxes for FreelancersObamacare has enabled many freelancers to get health insurance through online marketplaces. But how does it impact them at tax time?

For those who have gone without health insurance in the past, the individual mandate requires everyone to purchase insurance. There are some exemptions and some states have expanded Medicaid to cover more low-income individuals. While the $95 penalty in 2014 was relatively easy to ignore, the penalty for not buying insurance continues to rise and will top $695 or 2.5 percent of income in 2016.

Also, if you have a health savings account or similar policy, there are new limits on medical tax deduction thresholds that could affect you.

Q: Are there any exemptions to the mandate?

A: Yes. Individuals living abroad, members of federally recognized Indian tribes and members of certain religious sects are exempt from the mandate. People whose household income is below the minimum threshold for filing a tax return are also exempt, as are those for whom insurance premiums would total more than 8 percent of their household income.

If you suffer a hardship and cannot afford to make a premium payment as a result, you can apply for a hardship exemption certification issued by the health insurance marketplace. It certifies that you are unable to obtain minimum essential coverage that month.

Q: What kind of insurance coverage is considered acceptable under Obamacare?

A: The law established certain requirements for insurance plans, including that they cannot deny coverage to people because of a pre-existing medical condition, poor health status, claims history or any other factor.

Individual plans sold on and off the federal and state insurance exchanges now meet these minimum requirements. However, in order to get subsidized coverage, you must purchase your insurance through the online exchange.

Health savings accounts, which allow individuals to save money tax-free to be spent on out-of-pocket health care expenses, are still allowed under Obamacare. Typically, they are paired with the lowest-tier coverage (the “bronze” plans) offered on the exchanges. These usually have lower premiums and higher deductibles than other insurance plans.

Q: What are the tax credits that can help self-employed people afford insurance coverage?

A: Premium tax credits (often referred to as subsidies) can reduce premium costs for coverage purchased on your state’s health insurance marketplace or on the federal marketplace. You can take them in advance, to lower your monthly insurance premiums, or as a lump sum at tax time.

This provision is being challenged in the U.S. Supreme Court, but it is in effect for 2015. If you take them in advance, the tax credits are deducted from your premium cost by your health insurance provider, reducing your monthly insurance premiums. You may qualify as an individual if your modified adjusted gross income is up to $46,680.If the amount of advance credit payments you get for the year is less than the tax credit you’re due, you’ll get the difference as a refundable credit when you file your federal income tax return. If your advance payments for the year are more than the amount of your credit, you must repay the excess advance payments with your tax return.

Q: What are the implications of the law on high-income earners?

A: Individuals with earnings above $200,000 and married couples making more than $250,000 got hit with an increase in the Medicare part A payroll tax last year that will continue in 2015. It’s an increase of 2.35 percent on adjusted income over the threshold. The same high-income group will also pay a 3.8 percent capital gains tax on interest, dividends, annuities, royalties, rents, and gains on the sale of investments over the threshold.

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