Penalty
You may have to pay a penalty for not having health insurance. The federal penalty is gone but some states have a penalty.
The Affordable Care Act has a rule called the Individual Mandate which requires everyone to buy health insurance if they can afford it or pay a penalty at tax time.
Mandate is gone or maybe not
January 01, 2019 — The federal mandate is no longer in effect so the federal penalty is gone.
♦ States can have their own mandate.
Several states have adopted their own mandates with some assessing tax penalties. These include:
- California
- District of Columbia
- Massachusetts
- New Jersey
- Rhode Island
- Vermont.
Vermont has a mandate but has not yet imposed a tax penalty for not having coverage. Other states are considering individual mandates.
Maryland asks on state tax returns about health insurance coverage but so far just to encourage individuals to enroll.
♦ The ACA mandate was a requirement that everyone who can afford it must purchase health insurance to provide at least a minimal level of healthcare coverage. Failing to buy insurance could result in having to pay a penalty.
→ The federal penalty was last applied to tax year 2018.
The mandate, federal or state-based, is intended to help stabilize the market. And to encourages people to avoid skimpy products that provide little coverage but consider financial risk.
State penalty
The number of states with an insurance mandate is still small. They are still setting up their requirements and penalties. They are expected to model their penalties after the Affordable Care Act.
If you live in one of the states listed above please be sure look for specifics related to your situation at your state's exchange.
Federal penalty
The penalty at the federal level is gone, starting January 1, 2019.
For reference and a bit of history, you can read about the federal penalty; how it was calculated or avoided.
♦ Keep in mind that 2018 was the last year it was imposed.
It should be noted that the penalty was not actually repealed. Congress used a tax bill to reduce the individual mandate penalty to $0. The penalty is just suspended. Future administrations could too easily reactivate it.
• The IRS refers to the federal penalty as a Shared Responsibility payment.
You owe the penalty for any month you, your spouse, and your tax dependents don’t have health insurance that qualifies as minimum essential coverage.
You pay the penalty when you file your federal tax return for the year you don’t have coverage.
• If you qualify for a hardship exemption , you won’t have to pay the penalty.
• If you qualify for a coverage exemption , you won’t have to pay the penalty.
How much is the penalty?
You must have enough income to be required to file income taxes.
• If you are not required to file a federal income tax return because your gross income is below your return filing threshold, you are automatically exempt from your shared responsibility (penalty) for that year. And you do not need to take any further action.
You do not need to file a return solely to report your coverage or to claim a coverage exemption.
You should not make a shared responsibility payment if you are exempt from the coverage requirement because you have income below the filing threshold.
For the purposed of the calculation, income is what your household earns in excess of the threshold for your tax-filing status.
• The threshold amount is gross income.
Your gross income is the amount of money you earn before anything is taken out for taxes or other deductions.
2018 Federal Tax Filing Requirement Thresholds
| Filing Status | Age | Must file a return if Gross income exceeds |
|---|---|---|
| Single | Under 65 | $12,000 |
| 65 or older | $13,600 | |
| Head of household | Under 65 | $18,000 |
| 65 or older | $19,600 | |
| Married filing jointly | Under 65 (both spouses) | $24,000 |
| 65 or older (one spouse) | $25,300 | |
| 65 or older (both spouses) | $26,600 | |
| Married filing separately | Any age | $12,000 |
| Qualifying Widow(er) with Dependent Children |
Under 65 | $24,000 |
| 65 or older | $25,300 |
The threshold amounts are expected to increase slightly each year.
The annual payment amount is either a percentage of your household income in excess of your filing threshold or a flat dollar amount, whichever is greater.
Your penalty payment amount is capped at the cost of the national average premium for a bronze level health plan available through the Marketplace.
For 2018, the annual national average premium for a bronze level health plan available through the Marketplace was $3,396 per year ($283 per month) for an individual.
Up to a maximum of $16,980 per year ($1,415 per month) for a family with five or more members ($283 x 5 = $1,415).
Percentage of income
• 2.5% of household income above filing threshold
• Maximum: Total yearly premium for the national average price of a Bronze plan sold through the Marketplace — $3,396
Per person dollar amount
• $695 per adult
• $347.50 per child under 18
• Maximum: $2,085 (3 x $695)
After 2016, the flat dollar amounts are based on the 2016 amounts plus an inflation adjustment.
♦ In 2018, the flat dollar amounts were not changed by inflation adjustment.
Filing thresholds will also change slightly from year to year.
Penalty calculations
Tom, an unmarried individual with no dependents, does not have minimum essential coverage for any month during 2018 and does not qualify for an exemption.
Tom’s income is $40,000 and his filing threshold is $12,000.
• To determine his payment using the income formula, subtract $12,000 (filing threshold) from $40,000. The result is $28,000. Two and a half percent of $28,000 equals $700.00.
•Tom’s flat dollar amount is $695.
Tom’s annual premium for bronze level coverage for 2018 is $3,396.
Because $700.00 is greater than $695 and is less than $3,396, Tom’s penalty for 2018 is $700.00 or $58.33 for each month he is uninsured (1/12 of $700.00 equals $58.33).
Tom will pay his penalty for the months he was uninsured when he files his 2018 income tax return.
In many cases, it will simply reduce his tax return.
Bob, an unmarried individual with no dependents.
He had minimum essential coverage for 10 months during 2018.
Bob had two consecutive months without coverage.
Because the time without coverage is less than three months and the two months were consecutive Bob qualifies for a short coverage gap exemption for these two months.
Bob does not have a penalty.
John, an unmarried individual with no dependents.
He had minimum essential coverage for 9 months during 2018.
John had three consecutive months without coverage.
♦ Because the time without coverage is greater than two consecutive John does not qualify for a short coverage gap exemption for these months.
John must pay a penalty for three months where he did not have coverage.
John’s income is $40,000 and his filing threshold is $12,000 for tax year 2018.
•To determine his payment using the income formula, subtract $12,000 from $40,000. The result is $28,000. Two and a half percent of $28,000 equals $700.00 (1/12 of $700.00 equals $58.33 for each month).
Three months penalty is $175.00 (3 x $58.33)
• John’s flat dollar amount is $695 (1/12 of $695 equals $57.92 for each month).
John had coverage 9 months of the year so the flat dollar amount is the amount for three months without coverage or $173.76 (3 x $57.92)
John’s annual premium for bronze level coverage for 2018 is $3,396 or $283.00 per month.
John’s penalty for not having coverage for three months is $175.00.
This is because the law requires John to pay whichever is higher and the income formula amount is higher than the flat dollar amount.
Neither calculation exceeds the premium for bronze level coverage.
John will pay his penalty when he files his 2018 income tax return.
Robert and Sally are married and have two children under 18.
They do not have minimum essential coverage for any family member for any month during 2018 and no one in the family qualifies for an exemption.
For 2018, their household income is $70,000 and their filing threshold is $24,000.
•To determine their payment using the income formula, subtract $24,000 (filing threshold) from $70,000.
The result is $46,000. Two and a half percent of $46,000 equals $1,150.00.
• Robert and Sally’s flat dollar amount is $2,085 or $695 per adult and $347.50 per child. The total of $2,085 is the flat dollar amount in 2018.
The family’s annual premium for bronze level coverage for 2018 is $13,584.
Because $2,085 is greater than $1,150.00 and is less than $13,584 Robert and Sally’s penalty is $2,085 for 2018, or $173.75 per month for each month the family is uninsured (1/12 of $2,085 equals $173.75).
Robert and Sally will pay their penalty for the months they and their children were uninsured when they file their 2017 income tax return.
Who actually pays?
Not everyone without insurance has to pay the penalty. The list of exemptions is long.
♦ A Kaiser Family Foundation study in 2017 found that the number of low-income people paying the penalty was high. The report found that about 5 million uninsured people could get coverage for less than the penalty.
Because of subsidies in Obamacare, the lowest-level plans would be either free or very low cost to many of these uninsured people.
The belief is that many uninsured people are just confused and as a result make the mistake of paying the penalty instead of applying for health insurance.
♦ It has been reported that possibly up to 4 million people neither paid the penalty nor told the IRS that they had coverage.
President Trump issued an executive order in early 2017 directing the IRS to process individual income tax returns where the health insurance coverage box is left unchecked.
♦ This is a big deal because in prior years the IRS would considered the tax return "incomplete." Will people escape the penalty this way? Well that is not so clear.
Penalty calculators
The IRS actually had a pretty good online calculator. The IRS referred to it as the "estimator."
Since the penalty is no longer imposed it has been taken offline.
