In a word: yes. You still have to pay the Obamacare penalty for not having health insurance.The “Obamacare penalty” still applies to the taxes you pay in 2019 (aka - the 2018 tax year). Click To Tweet
2019 UPDATE: a tax law signed in December 2017 ended the Obamacare tax penalty from 2019 onward. However, you still needed to have health insurance throughout 2018.
People who did not have minimum essential coverage – and who didn’t qualify for an exemption in 2018 – are still required to pay a federal tax penalty. For the most part, if you weren’t covered by a major medical plan, then 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 took full effect in 2014, Americans who can afford health insurance but choose not to buy it have been required to pay a tax penalty called the Shared Responsibility Payment (SRP). The SRP is often referred to as the “individual mandate,” or the “Obamacare penalty.”
But Didn’t President Trump Get Rid of the ACA Penalty Before?
The 2017 tax reform bill stopped the tax penalty by removing the ACA’s individual mandate to buy health insurance. However, this did not take effect immediately. The penalty stopped 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, taxpayers 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.
State Tax Penalties: Three states (DC, MA, NJ) have reinstated the Shared Responsibility Payment for in-state residents beginning in 2019. More states are likely to follow.
So, How Long Until We Get Rid of the Obamacare Penalty for Not Having Health Insurance?
The ACA’s legislative provisions – tax penalty included – remained 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.
The ACA tax penalty did not disappear for 2018. So, if you went without health insurance in 2018 for 3 months or more, you’ll probably owe a tax 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.”
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 manually calculate your Obamacare tax penalty. Tax software programs can also determine this for you.
- 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 2018.
How Can I Avoid Paying the Penalty?
Make Sure You’ve Got ACA-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 Used Short-Term Health Insurance in 2018…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 temporary or fixed indemnity plans are still subject to the tax penalty if they relied on these plans instead of a major medical insurance plan.
Do I Qualify for an Exemption?
Many Americans 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 announced 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.
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Editor’s Note: This article was last updated in March 2019 to reflect the December 2017 tax bill, and the October 2017 changes in IRS enforcement of healthcare status reporting.