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Will I Have to Pay the Obamacare Penalty for Not Having Health Insurance?

There’s a lot of confusion about the Obamacare penalty and whether or not it still applies if you don't have health insurance.

September 29, 2017 - By Erica Block - read

2018 UPDATE: the Tax Bill enacted on December 22, 2017 ends the Obamacare penalty starting in 2019. However, you still need to have health insurance throughout 2018. Read more below.


In a word: yes. You still have to pay the Obamacare penalty for not having health insurance.

Although Congress passed a bill that would repeal part of the Affordable Care Act (ACA), the “Obamacare penalty” will remain intact for the next year.

People who do not have minimum essential coverage – and who don’t qualify for an exemption – are still required to pay a tax penalty. For the most part, if you aren’t covered by a major medical plan, then it’s likely that you’ll need to pay the Obamacare penalty.

What Is the Obamacare Penalty?

Having health insurance became mandatory when the ACA was passed. Since the Affordable Care Act (ACA) took full effect in 2014, Americans who can afford health insurance but choose not to buy it have been required to pay a penalty called the Shared Responsibility Payment (SRP). The SRP is often referred to as the “individual mandate,” or the “Obamacare penalty.”

Will I Have to Pay the Obamacare Penalty for Not Having Health Insurance? | SRP definition | HealthCare.com

But Didn’t President Trump Get Rid of the Penalty Before?

The 2017 tax reform bill stops the tax penalty by removing the ACA’s individual mandate to buy health insurance. However, this does not take effect immediately. The penalty stops on January 1, 2019.

Now that Donald Trump is in the White House, many Americans are left wondering if the ACA individual mandate currently stands, and whether the federal government still requires that they pay a tax penalty for being uninsured.

Under the ACA, tax filers are required to indicate whether they were covered by health insurance for part of (or the entirety of) the previous year. That is how the IRS keeps track of whether someone owes the federal government money and has to pay the Obamacare penalty for being uninsured.

In January 2017, President Trump signed an executive order requiring federal agencies to waive any healthcare-related provisions that impose financial penalties on individuals. That is to say, the president essentially told the Internal Revenue Service (IRS) to cool their enforcement of the Obamacare penalty. This executive order was aimed at making it a lot harder for the IRS to collect them.

In October 2017, though, the IRS pushed back. In a statement sent to tax professionals, the federal government agency warned that it would block or suspend the processing of any 2017 income tax return that fails to abide by Obamacare rules. This means that everyone is still required to disclose their health coverage status when filing their returns.

So, How Long Until We Get Rid of the Obamacare Penalty for Not Having Health Insurance?

The ACA’s legislative provisions – tax penalty included – remain the law of the land until 2019. Most of the ACA will also remain intact after that date. American taxpayers are still required to follow the law and, thus, it’s currently too soon to skip health insurance without penalty.

Despite difficulties the IRS may or may not encounter in enforcing the individual mandate, the agency maintains that people without health insurance still are required to pay a fine. “Legislative provisions of the ACA law are still in full force until changed by the Congress,” reads an official statement on the IRS website. “Taxpayers are still required to follow the law and pay what they may owe‎.”

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I Don’t Have Health Insurance – How Much Will I Have to Pay for the Obamacare Penalty?

People who go more than three full, consecutive months without health insurance coverage are required to pay a tax penalty for that year. (Note: If you have health insurance for only one day of a month, it doesn’t count as a month without health insurance).

  • The tax penalty amount for being uninsured is calculated in one of two ways:
    • Individuals either pay a percentage of their total household adjusted gross income — which is tallied on their annual tax return — or a flat rate, whichever amount is greater.
  • The amount owed also depends on the size of your household and the number of months during which you (and/or any member of your family) went without coverage.
  • Check out this article for in-depth information about how to calculate your Obamacare tax penalty. If you’re an individual (the only person living in your household), you can take a look at the chart below to determine the cost of your penalty for not having health insurance in 2017.

Will I Have to Pay the Obamacare Penalty for Not Having Health Insurance? | HealthCare.com

How Can I Avoid Paying the Penalty?

Make Sure You’ve Got Obamacare-Compliant Health Insurance: The easiest way to avoid paying a tax penalty is to make sure you’re covered. Whether you buy coverage through a broker, a private online marketplace, a government-run exchange, or directly from an insurance company, Obamacare-compliant individual and family health insurance plans will protect you from paying a fine. So long as you don’t go without Obamacare-compliant coverage for more than two consecutive months in a year, you will not be subject to a tax penalty.

If you get your health insurance from outside the government marketplace – either through your employer, a private insurer, Medicaid, or Medicare – you’re still protected against paying a penalty, as these plans all meet the federal standards of minimum essential coverage. That said, Medicare beneficiaries who are enrolled only in Medicare Part B may still incur a tax penalty, as Medicare Part B in and of itself doesn’t meet the ACA’s minimum essential coverage requirements.

If You Have Short-Term Health Insurance…You Still Need to Pay a Tax Penalty

Some insurance plans, such as short-term health insurance plans and various supplementary insurance plans, do not meet the minimum essential coverage requirements outlined by the Affordable Care Act. People who are covered by short term health insurance plans or supplemental healthcare plans are still subject to the tax penalty if they do not also have coverage in the form of a major medical insurance plan.

Be Prepared When Open Enrollment Comes Around

Be cognizant of enrollment dates. The Open Enrollment Period to buy health insurance was six weeks long for 2018 – lasting from November 1, 2017 to December 15, 2017. Next year’s open enrollment period will be similarly short.

health insurance open enrollment | tax penalty info

 

Do I Qualify for an Exemption?

Many consumers without coverage can be excused from the tax penalty, under a long list of possible exemptions. For example, people who are incarcerated and people with very low incomes qualify for an exemption and do not have to pay a penalty for being uninsured. To qualify for an exemption, individuals must submit Form 8965 (“Health Coverage Exemptions”) when they file their federal income tax return.

Stricter Enforcement: In February 2017, the Department of Health and Human Services proposed new policy changes that will place more stringent documentation requirements on exemption applicants and people trying to sign up for Marketplace coverage through special enrollment periods (SEP).

I Don’t Need Health Insurance. Can I Just Pay the Penalty?

As the cost of insurance premiums and deductibles continue to go up, some people may choose to pay the tax penalty, which, in many cases, is cheaper than buying insurance. Before you consider this option, though, it’s necessary to understand why having health insurance is important; you don’t want to risk the possibility of going into debt or spending thousands of dollars when a medical emergency pops up.

Taking the Next Steps

It’s important to know all your healthcare options before deciding on your health insurance coverage.

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Editor’s Note: This article was updated in February 2018 to reflect the December 2017 tax bill. This article was also updated to reflect the October 2017 changes in IRS enforcement of healthcare status reporting.