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Despite What White House Says, Obamacare Tax Is Here

NEW YORK (TheStreet) -- Late last week, commentator Matt Drudge received a swift rebuke from the White House and many others after he claimed that he had begun to pay the Obamacare individual mandate tax.

Because that tax is not due until 2015 for those who lack health insurance coverage this year, his proclamation that he had paid the self-termed "Liberty Tax" was widely seen as a farce.

Unfortunately, his claim turned out to be true. Many of us who are self-employed pay Uncle Sam via quarterly estimated tax payments for the following year, which are due in April, June, September and January. These payments often include not just federal taxes, but also a self-employment tax comprised of Medicare and Social Security taxes and other taxes. The individual-mandate tax happens to be one of those in the "other" category.

In calculating the amount of tax owed, you must fill out Form 1040-ES, which includes several pages of instructions, vouchers for each quarterly payment and a somewhat complicated worksheet used to calculate the payments.

Line 12 of the worksheet is for "other taxes." While there is no specific mention of the Obamacare penalty on that line, it does refer you back to the instructions. There, on page two, there's a list of what's new in 2012. Under the section "Health Care Coverage" is the following:

When you file your 2014 tax return in 2015, you will need to either (1) indicate on your return that you and your family had health care coverage throughout 2014, (2) claim an exemption from the health care coverage requirement for some or all of 2014, or (3) make a payment if you do not have coverage or an exemption(s) for all 12 months of 2014. For examples on how this payment works, go to www.IRS.gov/aca and click under the "Individuals & Families" section. You may want to consider this when figuring your "Other taxes" on Line 12 of the 2014 Estimated Tax Worksheet. For general information on these requirements, go to www.IRS.gov/aca.

It appears as though the critics, who lack a basic understanding of how the self-employed pay their taxes, jumped the gun on this one. The individual-mandate tax is here, and technically those who pay estimated taxes and lack health insurance or an exemption are now on the hook.

The taxes for those lacking coverage under the "Shared Responsibility Provision" of the Affordable Care Act are the following:

The greater of:

  • 1 percent of your household income that is above the tax return filing threshold for your filing status, or
  • Your family's flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285,
  • But capped at the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014.

However, that's just the beginning as the penalties will increase to 2% of household income (or $325 per adult and $162.50 per child) in 2015 and 2.5% (or $695 per adult and $347.50 per child) in 2016. From there, increases are based on inflation.

Like it or not, the individual-mandate tax is here.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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