I know you’re probably thinking that I’m spending too much time writing about The Affordable Care Act, also informally known as Obamacare. But, the legislation to be completely implemented on January 1, 2014 is the most important health care legislation since Medicare was approved nearly half a century ago. And not understanding is not an option. Lack of knowledge can cost you your health insurance or a penalty when you pay your taxes.

In a recent post, I exploded the myth that all employers must provide health insurance to their employees. Although there is an employee mandate that applies to most employers with over 50 full-time employees, it is a certainty that many employers will calculate the cost of the penalties relating to not give their employees health care insurance. Many of these employers will decide that even with a tax penalty, not providing health insurance is more cost-effective. They may offer an alternative such as directing employees to the state health insurance exchange that will open for business on October 1, 2013 to help individuals find affordable health insurance. An employer can then elect to provide a Health Reimbursement Arrangement commonly referred to as an HRA (which I will discuss in detail in an upcoming post).

So if your employer has less than 50 employees or opts to take the penalty for not providing insurance you must obtain insurance on your own or face a tax penalty. The Internal Revenue Service will assess the penalty on your tax return. In 2014, the penalty will be a modest 1 percent of annual income or $95; taxpayers will pay whichever amount is higher. However, by 2016 penalty increases to $695 or 2.5 percent of income, again the higher amount is the penalty. The Affordable Care Act calls for the penalty to be calculated so that it does not exceed the annual premiums of a mid-level health insurance plan that can be obtained through each states health insurance marketplace.

Insurance coverage that exempts you from paying a penalty includes your own health insurance, employer-provided insurance, and government programs such as Medicare or Medicaid. But, as with the employer mandate, the individual mandate also exempts many groups. If you are a member of any of the following classifications, you do not have to buy health care insurance nor pay the penalty.

• If your health care coverage is more than 8 percent of your income, you are exempt from penalties.
• If your income is lower than the amount required for filing taxes, you are exempt from penalties. Last year the threshold for a single person was $9750 and for a married couple with two dependents (children) the threshold was $27,100.
• Members of Native American tribes
• People who, through religious beliefs to not allow them to buy health insurance
• People who are in prison

What This Means to You

If you already are getting health care insurance from your employer, and the company continues to pay it or a portion of it there is no change.

If your employer does not offer coverage or discontinues insuring you, then you will be able to buy insurance through your state health insurance exchange or marketplace. If you do not buy insurance you will be assessed a penalty when you pay your taxes. The penalty rises each year from 2014 to 2016.

If you get insurance from the government, Medicare or Medicaid or VA and the like things remain unchanged.

If you are in an exempt group, you have a choice – you can go without insurance without a penalty or you may buy insurance or accept coverage from your employer.