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Legacy Content / GLOSSARY: TAXES

Taxes For Noncompliance

As lawmakers consider ways to pay for health reform, use our glossary of potential offsets to get caught up fast.

July 23, 2009

Updated Nov. 24 at 3:00 p.m. to reflect continuing legislation.

Definition

Anyone who doesn't buy health insurance or any employer who doesn't offer it at levels required by the government would be taxed as a penalty.

Executive Summary

Unlike some proposed taxes to pay for health care reform -- such as a surtax on the wealthy -- taxes for noncompliance impact individuals based on their decisions about health care. If you get health coverage that meets government requirements, then there are no taxes. If you don't, then the tax penalty will help pay for someone else to get health coverage who cannot afford it.

 

Although companies with less than $250,000 per year in payroll would be exempt and slightly larger companies would pay less than the full 8 percent, depending on the size of payroll, critics say provisions may be too rigid for smaller businesses.

Original House plans had the tax starting for companies with payrolls as low as $250,000 with threats to go even lower. Molly Brogan, a spokeswoman for the National Small Business Association, warned that Congress could target even smaller businesses as a revenue source.

Under the Senate plan, companies that do not cover at least 60 percent of their employees' health insurance must pay $750 per year per full-time employee.

In any case, for most people, the health insurance system would continue to be employment-based, something the National Small Business Association hoped would change with health care reform.

"We don't think that the best thing for anybody, in terms of broad strokes, is to have health insurance tied to the employer. It serves as a huge competitive disadvantage for small businesses," Brogan said.

Max Savings

According to CBO estimates, the House bill would raise $33 billion from the individual tax and $135 billion from the employers’ tax over 10 years. The Senate bill would raise $8 billion from individuals and $28 billion from employers over 10 years.

Plans

The House bill would tax 2.5 percent of adjusted gross income more than $9,350 for individuals and $18,700 for couples for failing to purchase insurance. Employers that did not provide insurance for their workers would pay a tax of 2 percent to 6 percent of wages (for companies with payrolls of $500,000 to $750,000) or 8 percent for companies with payrolls above $750,000. Under the Senate bill, the penalty would start at $95 a year per person in 2014 and rise every year, with a maximum of $2,250 for a family. There would not be a fee if the cheapest available plan cost more than 8 percent of an individual or family’s household income. Employers who fail to purchase health insurance for workers would be charged $750 per employee per year.

Links

National Small Business Association On Noncompliance Tax

"Employers Express Doubts About Employer Mandate and Government-Sponsored Public Plan" (Press Release by Aon Consulting Worldwide, July 20)

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