In late June, the Supreme Court of the United States upheld the provision of the Affordable Care Act which requires most individuals to maintain a minimum level of health insurance or pay a penalty.

The purpose of the law is to make healthcare affordable and easily accessible for individuals. The individual mandate, which goes into effect in 2014, is the provision in the law that is getting the most attention.

How the individual mandate works

• Most U.S. citizens and lawful residents will be required to obtain health insurance
• Those who do not have the option to purchase affordable insurance through their employer, or who are not eligible for government-sponsored insurance (such as Medicare), will be allowed to purchase insurance through a state based insurance exchange
• Those purchasing insurance through the state based exchange may be eligible for a government-provided subsidy that will cover some portion of their monthly premium
• Eligibility for and the amount of the subsidy are determined by the size of your household and the amount of household income
• Those who fail to obtain health coverage will be subject to a penalty

How it impacts your tax return

While the individual health insurance mandate doesn’t immediately make you think of taxes, it does have a direct impact on your tax return. In 2014, individuals will be required to demonstrate that they maintained health insurance coverage for all of calendar year 2014. The penalty for those that do not have such coverage is included on the tax return. To facilitate this process, employers are required to report the amount of premiums paid for employee health coverage directly on the employee’s wage reporting document for the year, commonly known as Form W-2. Individuals that obtain coverage through the state based exchanges will also receive a reporting document from the exchange that details the months the individual had health coverage and the amount of monthly subsidy, if any, received.

No, your employer-provided health benefits won’t be taxed

Because of the requirements above, myths have begun to circulate that the government is now taxing employer provided health benefits. This is completely false. The only reasons that employers are reporting the amount of health insurance premiums paid on employees’ wage reporting documents is to help facilitate the implementation of the individual mandate provisions and to help employees understand and make comparisons about insurance costs.

Still have questions? Sound off in the comments.