Individual Mandate

Home » Tax Tips » Individual Mandate

obamacare tax penalty

For instance, it’s very unlikely that a family would face a $10,000 penalty in one year. Moreover, if such a family did face this penalty for not having health insurance, they would likely be in a high-income bracket for which health insurance tends to come from an employer or be affordable.

Some states are enacting their own state-wide health care individual mandates. Massachusetts has had it own health coverage mandate since 2006 and it remains in effect today. Other states are considering implementing their own mandates—these likely won’t take effect until 2020 or later. However, those who refrain from obtaining health coverage will likely be younger, healthy people who don’t go to the doctor much.

obamacare tax penalty

Although Congress did not repeal anything other than the mandate penalty (and later, some of the ACA’s taxes), a lawsuit was soon filed by a group of GOP-led states, arguing that without the penalty, the mandate itself was unconstitutional. Louise Norris has been a licensed health insurance agent since 2003 after graduating magna cum laude from Colorado State with a BS in psychology.

Thus, if you failed to obtain health “qualifying coverage” during 2018, you were subject to the penalty. Qualifying coverage includes health insurance you obtained through an employer or that you obtained yourself through your state health insurance exchange. Most people who failed to obtain qualifying coverage during 2018 had to pay a penalty of $695 per adult and $347.50 per child under 18 (up to a maximum of $2,085 per family). However, you were not subject to the penalty if you were uninsured for less than three months during 2018 or were otherwise exempt from the individual mandate. For more details about the exemptions, see Exemptions from the requirement to have health insurance at

After 2018, there is no longer be a penalty imposed by the IRS, although New Jersey, Massachusetts, and DC now impose their own penalties; California and Rhode Island will join them in 2020. If your income is 400% or less of the federal poverty level, you may qualify for a tax credit, which varies by state. Those who earn $25,000–$50,000 were the most likely to pay the penalty, most of whom stated they couldn’t afford insurance. Those who earned less than $25,000 could usually take advantage of Medicaid. If you’re 30 or older and want a “Catastrophic” health plan, you must apply for a hardship exemption to qualify. Now that you’re signed up, we’ll send you deadline reminders, plus tips about how to get enrolled, stay enrolled, and get the most from your health insurance. Subscribe to get email updates with important deadline reminders, useful tips, and other information about your health insurance.

Revenue from the state’s individual mandate is used to help cover the cost of the state’s new premium subsidies, which extend to higher income levels than the ACA’s premium subsidies. New Jersey has implemented an individual mandate, effective in 2019, with a penalty modeled on the ACA’s penalty. The maximum penalty is based on the average cost of a bronze plan in New Jersey.

Video: The Affordable Care Act Tax Penalty Explained (obamacare)

Individuals who qualify for ACA tax credits may be largely insulated from these cost increases. But those who don’t qualify for the credits because their income is too high may get priced out of the market. This includes the employer mandate that requires businesses with more than 50 full-time employees to provide health coverage for their employees or face stiff penalties.

Beginning in 2019, people could no longer be penalized for not having health insurance. The number of filers subject to the ACA’s penalty was lower for 2015 , as overall enrollment in health insurance plans had continued to grow. The IRS reported in January 2017 that 6.5 million 2015 tax returns had included individual shared responsibility payments. But far more people—12.7 million tax filers—claimed an exemption for the 2015 tax year. For 2016, the IRS reported that 10.7 tax filers had claimed exemptions by April 27, 2017, and that only 4 million 2016 tax returns had included a penalty at that point. Republicans have long been opposed to the ACA’s individual and employer mandates. However, perhaps the most important reason the mandate was eliminated in the TCJA is because it will save money.

There is a penalty in New Jersey, DC, Massachusetts, California, and Rhode Island. To the best of my knowledge, the IRS did not provide similar reports for the 2017 and 2018 tax years. It rose to 2 percent in 2015, and to 2.5 percent for 2016 and beyond. Before 2012, you could deduct only the amount of your medical expenses that was more than 7.5% of your adjusted gross income. The ACA increased the adjusted gross income threshold for claiming the itemized deduction for medical expenses to 10% from 7.5% beginning after 2012. The Congressional Budget Office estimates this to be roughly $4,500 annually for individuals and $12,000 for families. A federal government website managed and paid for by the U.S.

  • If your income was 138% or less of the poverty level, you didn’t have to pay the tax, and in most states, you would also be eligible for Medicaid.
  • To the best of my knowledge, the IRS did not provide similar reports for the 2017 and 2018 tax years.
  • The case was heard by the Supreme Court in November 2020, and a ruling is expected in the spring or early summer of 2021.
  • Starting in 2017, the flat-rate penalty is subject to annual adjustment for inflation.
  • Rates increased considerably again for 2018, although the bulk of the rate increase was on silver plans (due to the elimination of federal reimbursement for cost-sharing reductions).
  • The revenue generated from the penalty is used to help fund the state’s new reinsurance program.

The penalty amount is also based on the number of months you or your dependents were uninsured. Prior to 2014, there was no mandate, but insurance companies in most states could decline applications or charge additional premiums based on applicants’ medical history. Massachusetts already had a mandate and penalty, which has been in place since 2006.

Watch Out For State Mandates

Massachusetts has had a health insurance penalty since instituting a state health insurance program in 2006. In the past, they did not assess a health insurance penalty if someone paid one at the federal level.

And if they were, that explains why everyone elses co-pays and premiums were through the roof. For most people, “household income” is simply adjusted gross income from Form 1040. But if you have non-taxable Social Security benefits, tax-exempt interest, or foreign earned income and housing expenses for Americans living abroad, you’ll need to add those amount to your AGI from your 1040. Be sure to include income from any dependents who are required to file a tax return. Starting in 2017, the flat-rate penalty is subject to annual adjustment for inflation. But for 2017, the IRS confirmed that there was no inflation adjustment, so the flat-rate penalty continued to be $695 per adult in 2017, with a maximum of $2,085 per family. And for 2018, that was once again the case, as the IRS confirmed that the flat rate penalty would remain unchanged in 2018.

The state has not double-penalized people while the federal mandate penalty was in effect, but starting in 2019, the state once again began assessing penalties on people who are uninsured and not exempt. The penalty in Massachusetts is calculated as 50 percent of the cost of the lowest-cost plan that the person could have purchased. There’s no penalty if your income is up to 150 percent of the poverty level. Revenue generated from the penalty is used to help cover the cost of ConnectorCare coverage for people with income under 300 percent of the poverty level. It’s important to understand that the TCJA did not repeal the entire ACA.

Turbotax Guarantees

Osborne Insurance Services specializes in finding the best plan for your needs, and every member of our staff is an expert navigator of the ACA and its marketplace. There’s no reason for you to pay the tax penalty when you’re working with us to manage your plan. One of the most significant accomplishments of the ACA is the concept of guaranteed issue. This means that no one can be denied healthcare based on a pre-existing condition.

obamacare tax penalty

A viral Facebook post claims that former President Barack Obama’s health insurance law penalized a family a large amount of money for not buying health insurance and that President Donald Trump was responsible for stopping the practice. Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

The vast majority of tax filers had health insurance, and even among those who didn’t, penalty exemptions were more common than penalty assessments. But the GOP tax bill that was signed into law in late 2017 repealed the individual mandate penalty, starting in 2019. While there will not be penalties at the federal level anymore for going uninsured or choosing a plan that is not ACA-compliant, it is still important to look at state requirements for health insurance. A large handful of states have their own health insurance penalties that are assessed when people do not have insurance that complies with that state’s laws.

The first way to calculate the penalty obviously doesn’t apply since the max was $2,085 per year. So, the second would be the only way to get a $10,000-a-year penalty. To arrive at such a number, you would have to take 2.5% of the family’s income. One issue is the post doesn’t specify whether the $10,000 penalty was incurred in one year or over multiple years. 1.8million people paying average of $667.00 comes to the $1.2billion. I have a hard time believing 20 million people were insured for an entire year for $60.00 each.

Most Americans already get health insurance either from an employer or from the government ; they didn’t need to worry about the penalty because employer-sponsored and government-sponsored health insurance count as minimum essential coverage. It’s worth noting that the elimination of the individual mandate penalty is the crux of the Texas v. US (California v. Texas) lawsuit, which seeks to overturn the entire ACA.

Maryland’s tax return also asks about health insurance coverage, in order to try to connect uninsured residents with affordable coverage. Colorado’s tax return will have a similar feature as of early 2022 (but Maryland and Colorado do not penalize residents who don’t have health insurance). With less than 50 employees, you can use the health insurance exchanges to help you find the cheapest plans. With 50 or more employees, you must pay an excise tax of $2,000 per employee if you don’t provide health insurance. When Congress set the individual mandate penalty rate at zero as part of the TCJA, it eliminated the requirement in practice, but it did not repeal the ACA, or even the tax. The Court now must decide whether a zero-rate mandate is no longer a tax but still an unconstitutional mandate. This will test whether the Court wants to engage in a debate more metaphysical than the type Roberts accused economists of, such as the lack of distinction between a tax and a mandate.

Business Taxes

Beginning in 2019, although you are still required to have health insurance, there is not penalty for not having it. As of 2020 and future years, four states and DC are imposing financial penalties on uninsured residents. In most of the country, however, there is no longer a penalty for being without health insurance. But because the ACA’s premium subsidies adjust to keep coverage affordable even when premiums increase, the majority of people who buy health plans in the exchanges have continued to do so. Ultimately, Republican lawmakers passed the Tax Cuts and Jobs Act and President Trump signed it into law in December 2017. Although the tax bill left the rest of the ACA intact, it repealed the individual mandate penalty, as of 2019 . A viral social media post claims that a family was penalized $10,000 for not being able to afford health insurance.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business. Sign up for our Health Tip of the Day newsletter, and receive daily tips that will help you live your healthiest life.

Uninsured Tax Filers Were More Likely To Get An Exemption Than A Penalty

Revenue generated from the penalty is used to fund the state’s new reinsurance program. Companies with less than 25 employees may qualify for a 50% tax credit for health insurance. They are eligible if the average wage of the employees is less than $50,000, and they pay at least half of the premiums. The tax was capped at a maximum level, and it was never to be more than the average national cost of purchasing the Bronze health insurance plan on the exchanges. In some cases, you may qualify for a health coverage exemption from the requirement to have insurance.

However, with the elimination of the federal health insurance penalty, they will begin charging a state fee. The federal tax penalty for not being enrolled in health insurance was eliminated in 2019 because of changes made by the Trump Administration. There is no federal penalty for not having health insurance since 2019, however, certain states and jurisdictions have enacted their own health insurance mandates. To offset the cost accrued by providers who are now covering more people with potentially costly medical conditions, the penalty is a necessity to ensure that a healthy base of customers are buying insurance. In essence, health insurance companies can only afford to cover sick people if healthy people are paying for insurance too. Not sure if you are exempt from the tax penalty or from the requirement to purchase health insurance?

You may owe the fee for any month you, your spouse, or your tax dependents don’t have qualifying health coverage (sometimes called “minimum essential coverage”). A mandate also is important if government is going to require insurance companies to sell to all comers, with no underwriting for pre-existing health conditions. Without some government-imposed nudge, many people would not insure themselves until they got sick, increasing the burden on providers and government and raising insurance premiums to unsustainable levels. Indeed, Republicans have already raised the cost of ACA exchange subsidies since, by gutting the mandate, they encourage more healthy people not to purchase insurance until they get sick. For their part, the attorneys general who want the ACA thrown out effectively have been arguing for bigger government. When it comes to health care costs, either we pay ourselves or someone else pays for us.