There was a great deal of stirring around the most recent deadline to register for the Affordable Healthcare Act in the United States. Pros and cons were presented and all has seemed transparent. Information for the public can be found briefly listed on the Affordable Healthcare Act website (https://www.healthcare.gov/).
The site is simple to follow and presents “most” of the facts down to the penalties. The penalty portion of the site is specific as to what the upfront sanctions are for not participating in the program, save those who are exempt from its provisions. The penalties are spelled out through the year 2016.
The enforcement of the sanctions is administered by the Internal Revenue Service (IRS). What the IRS cannot do to enforce the law is as follows:
- Place a lien on a consumer’s home
- Garnish a consumer’s wages
The IRS can only recoup penalty funds from a consumer’s current or future tax return.
The interesting thing that has not been mentioned in any arena regarding the penalties is how it can affect a consumer’s credit. Millions of consumers are excited to get back into the economy. Home purchases have increased over the last few years as well as with other big ticket item purchases such as automobiles, RV’s and other basic commerce items. It is common knowledge that credit most often plays a substantial role in these types of purchases. Credit goes hand in hand with the available interest rate at the time of the purchase.
Over the last couple of years interest rates have gradually increased. Consumers are aware of this and have been working toward maintaining the best credit profiles possible to acquire the best interest rates in the market. One may ask, “How can a penalty from the Affordable Care Act hurt my credit if the IRS cannot lien my home or garnish my wages?”.
The answer lies in the type of tax lien. While the IRS is not able to place a lien against a consumer’s home, that lien will still appear on “Public Record” against that consumer. A Public Record is not reported to the credit bureaus by the IRS, a court or a clerk. The information is simply made available to the public. For instance when a person files for bankruptcy that information is sought out by third party companies, the credit bureaus purchase that information in bulk and place it on the consumer’s credit report. On the average when a consumer has a new Public Record that appears on their credit file, their credit score can drop anywhere from 80 – 150 points. The drastic change to a consumer’s credit score can prevent them from purchasing a home, acquiring a decent interest rate on an automobile along with affecting other ancillary areas related to credit.
As the IRS begins to assess these penalties, consumers may not feel the upfront bite on their tax returns but very well will feel the bite when they attempt to finance a new home or auto. The upfront penalties are as follows:
(This is from the healcare.gov website)
The penalty in 2014 is calculated one of 2 ways. If you or your dependents don’t have insurance that qualifies as minimum essential coverage you'll pay whichever of these amounts is higher:
1% of your yearly household income. (Only the amount of income above the tax filing threshold, $10,150 for an individual, is used to calculate the penalty.) The maximum penalty is the national average premium for a bronze plan.
$95 per person for the year ($47.50 per child under 18). The maximum penalty per family using this method is $285.
The way the penalty is calculated, a single adult with household income below $19,650 would pay the $95 flat rate. A single adult with household income above $19,650 would pay an amount based on the 1% rate. (If income is below $10,150, no penalty is owed.)
The penalty increases every year. In 2015 it’s 2% of income or $325 per person. In 2016 and later years it’s 2.5% of income or $695 per person. After that it's adjusted for inflation.
If you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured. If you’re uninsured for less than 3 months, you don’t have to make a payment.
Once a consumer receives a tax lien on their credit file, it can remain up to seven years from the date the item was released or paid. This long term effect can be devastating to families. Unfortunately millions of consumers will be facing this dilemma without knowing the remedies available.
If a consumer properly disputes these negative listings they can be removed from their credit file. The consumer has the right to dispute anything on their credit report/s. First the consumer needs to make sure the listing appears on their credit file. Next would be the disputing process. It does not take much work but does require the proper tools.
As we all hope to move toward having a better economy we can agree it is important to have good credit. We believe that all can accomplish this and have the good lives that we all deserve.
Richard M Mercer Jr (free contributor)
Repairing your credit has been made easier. Over 3 million consumers have taken the opportunity to learn about and repair their credit with just a few easy steps. Here are some of the latest additions.
Learn more about your credit scores and how to avoid bad credit
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