On Dec. 22, 2017, President Donald Trump signed into law the tax reform bill, called the Tax Cuts and Jobs Act, after it passed both the U.S. Senate and the U.S. House of Representatives.
This tax reform bill makes significant changes to the federal tax code. The bill does not impact the majority of the Affordable Care Act (ACA) tax provisions. However, it does reduce the ACA’s individual shared responsibility (or individual mandate) penalty to zero, effective beginning in 2019.
As a result, beginning in 2019, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage.
Although the tax reform bill eliminates the ACA’s individual mandate penalty, this repeal does not become effective until 2019.
As a result, individuals continue to be required to comply with the mandate (or pay a penalty) for 2017 and 2018. A failure to obtain acceptable health insurance coverage for these years may still result in a penalty for the individual.
The Individual Mandate
The ACA’s individual mandate, which took effect in 2014, requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. The mandate is enforced each year on individual federal tax returns. Starting in 2015, individuals filing a tax return for the previous tax year indicate, by checking a box on their returns, which members of their family (including themselves) had health insurance coverage for the year (or qualified for an exemption from the individual mandate). Based on this information, the IRS then assesses a penalty for each nonexempt family member without coverage.
Effect of the Tax Reform Bill
The tax reform bill will reduce the ACA’s individual mandate penalty to zero, effective beginning with the 2019 tax year. This effectively eliminates the individual mandate penalty for the 2019 tax year and beyond. As a result, beginning with the 2019 tax year, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage for themselves and their family members.
Impact on Years Prior to 2019
Although the tax reform bill eliminates the ACA’s individual mandate penalty, this repeal does not take effect until 2019. As a result, individuals continue to be required to comply with the mandate (or pay a penalty) for 2017 and 2018. A failure to obtain acceptable health insurance coverage for these years may still result in a penalty for the individual.
Therefore, nonexempt individuals should continue to maintain acceptable health coverage in 2017 and 2018, and should indicate on their 2017 and 2018 tax returns whether they (and everyone in their family):
- Had health coverage for the year;
- Qualified for an exemption from the individual mandate; or
- Will pay an individual mandate penalty.
In addition, keep in mind that individuals who are liable for a penalty for failing to obtain acceptable health coverage in 2018 will be required to pay that penalty when they file their federal income taxes in 2019. As a result, some individuals may be required to pay the individual mandate penalty in early 2019, based on their noncompliance for the 2018 tax year.
Effect on Other ACA Provisions
Despite the repeal of the individual mandate penalty, employers and individuals must continue to comply with all other ACA provisions. The tax reform bill does not impact any other ACA provisions, including the Cadillac tax on high-cost group health coverage, the PCORI fees and the health insurance providers fee. In addition, the employer shared responsibility (pay or play) rules and related Section 6055 and Section 6056 reporting requirements are still in place.
The Problem with Minimum Coverage
Most states require drivers to carry basic liability coverage, which pays for injury and property damages if you are found at fault following an accident. These limits vary by state but can be as low as $10,000 per person or $20,000 per accident.
If you get into an accident, there’s a chance you could be sued. When this happens, minimum liability coverage may not be sufficient to cover the damages, and you could end up paying thousands of dollars out of your own pocket.
What’s more, if you cause an accident and your liability limits are too low to cover the expenses, the other party might go after your assets in court. To protect yourself, it’s important to think critically about how much coverage you need and to secure the proper limits.
How Much Auto Insurance Should I Carry?
While it can be tempting to simply pay the lowest amount possible for auto insurance, doing so can leave you exposed to serious financial risks. In general, it’s recommended that you carry more than the minimum coverage unless you are driving an older car with little value and have no assets to protect.
Did You Know? Insurance is mandatory in order to operate a vehicle in the United States, and every state has specific coverage limits that you must meet. While meeting these minimum limits may be enough to get you on the road, they are often inadequate if you are involved in a serious accident. As such, you may want to consider raising your limits in order to secure the right protection.
The higher you set your coverage limits and the lower you set your deductibles, the less you’ll pay out of pocket after a claim. You will need to determine how much you can comfortably afford when setting your coverage limits and deductibles.
Raising your limits and paying a little more each month will allow you to get the most out of your investment.
Customize Your Policy
When it comes to auto insurance, you have many options. Contact your insurance broker today. They will be able to discuss different ways to customize auto insurance policies, including adjusting collision, comprehensive, medical expenses, uninsured motorist and no-fault coverage. They can also recommend specific policy limits given your situation.
The Insurance Research Council reports that an estimated 1 in 7 drivers in the United States are currently uninsured. As a result, many car insurance companies across the nation offer specific coverage in the event that you get into an accident with an uninsured driver, such as uninsured motorist (UM) coverage and underinsured motorist (UIM) coverage.
UM coverage applies if the uninsured driver was at fault in the accident or if you were the victim of a hit-and-run accident. UIM coverage applies if the other driver is at fault and lacks a high enough level of coverage to cover the cost of the accident. This means that if the underinsured driver’s policy limit is reached before the cost is covered, your insurance company would pay the remainder of the costs until your coverage limit is reached.
While UM/UIM coverage can be helpful, often times the level of coverage isn’t enough to cover the costs of the accident. Luckily, several states allow you to “stack” your UM or UIM coverage. Read on to learn the differences between stacked and unstacked UM/UIM coverage.
If you have unstacked UM/UIM coverage, your level of coverage is the limit on your policy. For instance, if you have a set limit of $20,000, that is the maximum amount of coverage you will receive after an accident with an uninsured or underinsured driver. Unstacked coverage is more common than stacked coverage, seeing as it is your only option if you insure just one car.
If you insure multiple vehicles and your state allows stacking, you are permitted to increase your level of UM/UIM coverage. You can utilize stacked coverage within one policy, or across policies.
Stacking your coverage within one policy means you are combining your coverage limits for multiple vehicles on a singular policy. For example, if you own two cars on one insurance policy and your UM/UIM limit is $20,000, you can combine your coverage limits for a total of $40,000.
Using stacked coverage across policies means you are combining your coverage limits between separate policies for a singular claim. For example, if you own two vehicles, each with separate policies and your UM/UIM limit is $25,000, you could file a claim using both policies, therefore using up to $50,000.
The Advantages and Disadvantages
There are both benefits and drawbacks to utilizing stacked UM/UIM coverage. Stacking can potentially raise the amount of coverage you can use in case of an accident with an uninsured or underinsured driver, and lets you increase your UM/UIM limits without increasing your liability coverage.
However, if you have stacked coverage, you may have higher rates, seeing as car insurance companies have to offset the risk of costly reimbursement.
In addition, while some states lack laws for stacked coverage, some states either forbid it or only allow it in specific circumstances. Aside from state laws, some car insurance companies have certain policies that disallow stacked coverage. Be sure to contact your car insurance company to discuss your options with stacked UM/UIM coverage.