Whether to Pay the Individual Shared Responsibility Payment (or the “Obamacare Penalty”) This Year, and What You Should Expect to Pay
There’s been a lot of lingering uncertainty regarding the future of Obamacare / the Affordable Care Act (ACA); a pretty fair concern especially when it’s estimated that anywhere between 6 million and 24 million people are at risk of losing their health coverage. But what of the people who chose not to purchase health insurance? With the law’s uncertainty in play, do you still have to pay the Obamacare penalty this year?
IRS No Longer Requires Health Insurance Coverage Status When Filing Tax Forms
2018 UPDATE: The IRS reversed their policy in late 2017. In 2018 and 2019, you will still need to tell the IRS whether or not you had health insurance coverage during the previous year. However, the Obamacare penalty is scheduled to go away the following year.
Upon entering office this January, President Trump issued an executive order on Obamacare that instructed government departments and agencies to minimize the financial burden of ACA on states, individuals, providers, and other healthcare providers. This led to the Internal Revenue Service (IRS) loosening its enforcement of the Obamacare penalty (or the “individual mandate” penalty). Essentially: whether you submit paper or electronic tax forms, the IRS will still accept your returns for processing even if you don’t indicate whether you purchased health care coverage last year. In the past, the IRS routinely rejected tax forms from people who neglected to share their health coverage status.
Yes, Pay the Obamacare Penalty if It Applies to You
Attempts by the Trump administration and Congress to put forth health care reform legislation that effectively repeals and replaces Obamacare ultimately failed last week (you can read more on the Trumpcare disaster here). Effectively, this means that Obamacare remains the law of the land (with an unforeseen end-date).
What this means for you: if you were covered by health insurance last year, then let the IRS know; if you weren’t, still let the IRS know and pay the Obamacare penalty.
The Cost: Obamacare Penalty for the 2016 and 2017 Tax Year
There are two different calculations for the Obamacare penalty, and you pay whichever amount is greater. Either:
A.) $695 per adult. In addition, if you have kids, then it’s $347.50 per kid – this is capped at $2,085 per family though. So, if you’ve got more than seven, eight, or however many kids, you would still only pay $2,085.
B.) 2.5% of your total household adjusted gross income. In this case, your adjusted gross income is your income after you’ve subtracted your federal tax filing requirement threshold. For the 2016 tax year, that amount is $10,350 for a single taxpayer under 65-years-old. If you were uninsured last year and are under 65, we went ahead and calculated your estimated Obamacare penalty costs for this year’s tax season. (If your income isn’t listed below and you’re a single taxpayer under 65, then simply use this formula to calculate your penalty cost for the full year):
PENALTY COST = (INCOME – 10,350) x 0.025
“But what if I was only uninsured for X months?”: If you were uninsured for only a certain number of months in the last year, the penalty you pay would be equal to one-twelfth of your calculated full-year penalty, multiplied by the number of months you weren’t covered. For example, if you earned $75,000 last year but weren’t covered under a health insurance policy for three months, then your penalty costs would be three times $134.69, or $404.07.
If you’re looking for something a little more comprehensive, the Tax Policy Center has created a pretty great ACA tax penalty calculator.
What Happens If You Don’t Pay?
Honestly? Likely nothing. If the IRS isn’t being heavy-handed with its enforcement, then it’s likely that nothing will happen to you if you don’t pay the ACA penalty.
So, Why Is it Important That You Pay?
Well, the individual mandate penalty (properly known as the “individual shared responsibility payment”) is what allows Obamacare to function properly – to ensure that the proper tax subsidies can be provided to those who normally would not be able to afford health care. Until President Trump and Congress can come up with an effective health care bill to replace it, ACA remains in effect; however, in order to sustain it, people have to abide by the law and pay the Obamacare penalty. Unless you qualify for an exemption, then you should pay the penalty.
In cases where you qualify for an exemption, then you won’t have to pay the ACA penalty. Check out in the infographic below what counts as an exemption under Obamacare. If you quality for an exemption you can claim it when you file your tax return (your tax planner will often help you out with this, and programs like TurboTax walk you through a step-by-step process).
The Future of Obamacare Penalties
While there have been attempts this week at reconciliation in the House between conservative Republicans in the Freedom Caucus and moderate Republicans in the Tuesday Group, Axios reported this morning that an attempt at peacemaking failed. So, for the time being, the Affordable Care Act remains the law of the land and Obamacare penalties live on.
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The views expressed here are those of the author and do not necessarily represent or reflect the views of Healthcare, Inc. and HealthCare.com.