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Four million United States taxpayers will be forced to pay USD4bn in Affordable Care Act (ACA) individual mandate non-compliance penalties to the Internal Revenue Service in 2016, increasing to USD5bn annually in 2017-24, according to a new report from the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT).
Within the provisions of the ACA, most Americans will be required to maintain "minimum essential" health insurance coverage, and employers will be encouraged to offer that health coverage. Those individuals and employers who do not comply with these mandates – the individual "employee mandate" and "employer mandate" – are to make "shared responsibility" payments, or tax penalties, to the IRS.
While there has been much political discussion on delays being agreed to employer responsibility penalties to 2015, or even 2016 for certain businesses, it has continued to be confirmed that the individual mandate, and the assessment of its tax penalties, will still apply this year.
For individuals, the tax penalty will be equal to the greater of USD95 plus USD47.50 per child, or one percent of their taxable income up to the average national cost of getting basic insurance coverage for all family members, whichever is the greater. In 2015, the calculation will be USD325 or two percent, and, from 2016 onwards, USD695 or 2.5 percent.
It was calculated by the Tax Policy Center earlier this year that, for a single person who has enough income to file a tax return in 2014, the penalty can be as little as USD95 or as much as USD3,600, depending on income. However, for families, the penalty is much larger – a couple with two children could owe between USD285 and USD11,000, before increasing to a much higher level in subsequent years.
Following the CBO/JCT report entitled "Payments of Penalties for Being Uninsured Under the Affordable Care Act: 2014 Update," Orrin Hatch (R – Utah), Ranking Member of the Senate Finance Committee, stated it has shown "the consequences of Obamacare's big government mandates on American pocketbooks. The passage of this law with its 21 new taxes, tallying more than USD1 trillion, marked one of the biggest tax hikes on America families and businesses in our nation's history. Under the onerous individual mandate alone, millions of Americans are now expected to pay up to USD46bn more in penalties over the next decade."
In addition, Americans For Tax Reform has pointed out that "the CBO data also show that the majority of those liable for the tax are part of low-to-middle income households, a clear violation of President Obama's promise against 'any form of tax increase' on Americans making less than USD250,000 per year."
It is also noteworthy that, while the CBO and JCT had previously estimated that the ACA's overall effect would be to reduce US federal deficits, they have now declined to provide such an estimate as there have been changes made to the incidence of the Act, particularly the delay to the employer mandate and various carve outs from the individual mandate, such as the "hardship exemption" now also extended to those who had their previous insurance cancelled.
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