Obamacare Individual Mandate
ObamaCare's Individual Mandate: What is the Tax Penalty for Not Having Health Insurance?
ObamaCare's individual mandate requires that most Americans obtain health insurance by 2014 or pay a tax penalty. The individual mandate goes into effect January 1st, 2014. The penalty will be applied to your annual taxable income for each month you don't have health insurance (although you do have a 3 month grace period hence the marketplaces being open until March 31st, 2014).
The fee for not having insurance in 2014 is $95 per adult and $47.50 per child or 1% of your taxable income (up to $285 for a family), whichever is greater. See the "How the ObamaCare Tax Penalty Works" section below for more detail.
The mandate to have insurance for 2014 is sometimes referred to as the ObamaCare tax penalty, the individual mandate or individual shared responsibility fee. These are all the same thing. If you are looking for information on the employer shared responsibility fee (the one where employers have to cover full-time workers), please see our employer mandate page.
What is ObamaCare's Individual Mandate
One of the key parts of "ObamaCare" is the individual mandate. Originally purposed by the Heritage Foundation in 1989, the individual mandate requires that all eligible Americans have at least basic health coverage.
The individual mandate is officially part of the shared responsibly provision and is called a individual shared responsibility fee. The fee works like this: if you don't have insurance by January 31st, 2014 or obtain an exemption you get charged a fee for every month you don't have insurance on your year-end taxable income.
What You Need to Know About the Individual Mandate
There are a few things that every American should know about ObamaCare's individual mandate:
• Insurance must be obtained by January 2014 to avoid the fee.
• The fee is based off of the number of months in a given year an individual is without "minimal essential coverage" or an exemption.
• If a buying a "silver plan" on the health insurance marketplace will cost you more than 8% of your family income, after subsidies, you are exempt from the mandate.
• You are allowed a coverage gap of 3 months in a year and will be exempt from the fee for these months.
• Most employer based coverage, Medicare, Medicaid, CHIP, private insurance and all insurance purchased through your State's marketplace count as minimal essential coverage.
• The requirement to obtain health coverage is essentially the trade Americans make for our new benefits, rights and protections including the requirement for insurers to cover anyone who can afford it.
• Those who choose to pay the tax help to subsidize the cost of health insurance purchased through the health insurance marketplace.
• ObamaCare makes insurance more affordable. Americans making under 400% of the federal poverty level may be able to obtain free or low-cost health insurance from their State's Health Insurance Marketplace.
• The "mandate" to have insurance is officially a tax as declared by the supreme court on June 28, 2012.
• The individual mandate is technically called an "Individual Shared Responsibility Fee"
• The individual mandate and employer mandate are part of the "Shared Responsibility Provision", one of the key provisions contained within the Affordable Care Act.
The following video explains the Individual Mandate tax penalty:
The Shared Responsibility Provision
The individual mandate is officially called a "shared responsibility fee" and it is part of something called the individual shared responsibility provision. Here is the official definition of the provision:
The federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.
Want more information on the Penalty. Check out the official IRS page.
How the ObamaCare Tax Penalty Works
Your tax penalty (shared responsibility fee) for not having insurance is paid on your taxes at the end of the year. If your taxable income is below 133% of the FPL you are exempt from this tax.
2014 = $95 per person per year or 1% of your Income
2015 = $325 per person per year or 2% of your Income
2016 = $695 per person per year or 2.5% of your Income
2017 = Tax Penalty will increase by the rate of inflation going forward, or 2.5% of your Income
• The penalty is based on modified adjusted gross income.
• The total penalty for the taxable year cannot exceed the national average of the annual premiums of a bronze-level health insurance plan offered through the health insurance marketplaces.
• The maximum penalty per family is capped at no more than 300% of the minimum penalty (e.g. $695 x 300% = $2,085)
• Children under 18 are assessed at 50% of the minimum penalty.
• The penalty is pro-rated for the number of months you are without health insurance, though there is no penalty for a single gap in coverage of less than 3 months in a year.
• Health insurance plans will provide proof of coverage for their customers so as long as you have health insurance you don't have to worry about the details.
Subsidized Insurance: ObamaCare Subsidies
The best way to avoid the fee for many Americans will be to buy health insurance through their State's marketplace using ObamaCare Subsidies. Subsidies are only offered through the marketplace and help reduce premium costs and lower out-of-pocket expenses. ObamaCare's subsidies are aimed at people with incomes between 139% to 400% of the FPL (federal poverty level). The current 139% FPL, which changes each year, is $23,050 for a family of four and the 400% FPL is $92,200. Families who fall make between 139% and 400% FPL will be eligible for subsidies, although those making more will get considerably less cost assistance. Subsidies are given as refundable tax credits.
Nearly 26 million Americans may be eligible for subsidies to buy health insurance under Obamacare. Find out how to apply for health insurance premium tax credits for cost-assistance on the ObamaCare Health Insurance Marketplace using our Health Insurance Marketplace Guide.
More Information on the ObamaCare Tax Penalty For Businesses
See our ObamaCare employer mandate page for more information on the employer tax penalty for employers with over 50 full-time equivalent employees. Those with less than 25 full-time equivalent employees can get tax subsidies of up to 50% of their costs of employee premiums.
ObamaCare Exemption: How to Avoid the ObamaCare Tax Penalty
Those who have insurance through work or currently do not have insurance obviously have nothing to worry about when it comes to the tax penalty. Those on Medicare or Medicaid will also be exempt. Aside from this Americans below the %133 FPL threshold will be exempt as well. Overall around 26 million Americans will be exempt from the tax penalty.
Several groups are exempt from the requirement to obtain coverage or pay the penalty, including:
• People who would have to pay more than 8 percent of their household income for health insurance
• People with incomes below the threshold required for filing taxes (in 2012, $9,750 for a single person and $27,100 for a married couple with two children)
• People who qualify for religious exemptions
• Undocumented immigrants
• People who are incarcerated
• Members of Native American tribes
For those who can afford it and choose not to purchase health insurance the tax will be unavoidable. The money collected from these taxes goes towards funding ObamaCare and subsidizing hospitals who will have to cover unpaid emergency room visits. The money is also a down payment on your almost inevitable use of the health care system.
The Coverage Gap: If went without coverage for less than three consecutive months during the year you will not be responsible for the fee for that month.
ObamaCare Exemption: How to Apply for an Exemption
ObamaCare exemptions (i.e. getting an exemption from the Affordable Care Acts individual shared responsibility fee) for unaffordable coverage, short coverage gaps, certain hardships and individuals who are not lawfully present in the United States can be claimed only as part of filing a federal income tax return. The exemption for those under the federal income tax return filing threshold is available automatically. No special action is needed. For other exemptions you'll need to claim exemption on your income taxes and/or apply for a exemption certificate through the marketplace.
What Happens If I Don't Pay the Individual Mandate Fee?
The only way for the IRS to collect the fee for not having health insurance, if you choose not to pay it, is for them to withhold the money you would get back from the IRS after filing your income tax returns. The IRS cannot enforce the Individual Shared Responsibility provision with jail time, liens, or any other of typical methods of collection.
What is Minimum Essential Coverage?
In order to avoid the mandate you'll have to obtain "minimum essential coverage". Basically this includes all Government and job based insurance and most private insurance. As a rule of thumb if you have insurance already you don't have to worry about the mandate.
Minimum essential coverage includes the following:
- Employer-sponsored coverage (including COBRA coverage and retiree coverage)
- Coverage purchased in the individual market, including a qualified health plan offered by the Health Insurance Marketplace (also known as an Affordable Insurance Exchange)
- Medicare Part A coverage and Medicare Advantage plans
- Most Medicaid coverage
- Children's Health Insurance Program (CHIP) coverage
- Certain types of veterans health coverage administered by the Veterans Administration
- Coverage provided to Peace Corps volunteers
- Coverage under the Non-appropriated Fund Health Benefit Program
- Refugee Medical Assistance supported by the Administration for Children and Families
- Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage)
- State high risk pools for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these program may apply to HHS to be recognized as minimum essential coverage)
Minimum essential coverage does not include coverage providing only limited benefits, such as coverage only for vision care or dental care, and Medicaid covering only certain benefits such as family planning, workers' compensation, or disability policies.
Can I Buy Insurance for my Kids and Pay the Tax for Myself?
You can get coverage for any of all of your dependents but you will still be responsible for the tax penalty for yourself.
Individual Mandate: Why Do I Need to Buy Health Insurance?
The individual mandate and employer mandate are what make ObamaCare work. The requirement to obtain insurance is essentially a trade for your the fact that insurers have to cover you and can't base your costs on gender or health status.
ObamaCare offers a lot of new benefits, rights and protections to all Americans in regards to their health care. The new benefits, rights and protections include the mandate for health insurance companies to cover everyone regardless of pre-existing conditions (which 1 in 2 Americans have), stops insurers from charging women more than men or from dropping coverage for any reason aside from fraud, mandates that insurers cover a bunch of essential health benefits, wellness visits and preventative services with no out-of-pocket costs and generally increases the quality of your care. The only way health insurance providers can afford all of this is if everyone buys insurance.
If everyone just waited until they got sick to obtain coverage then health insurance companies couldn't afford to provide insurance and everyone's premium rates would become unaffordable. If everyone just used emergency services (which are paid for by tax dollars) then tax payers would in hot water. Remember anyone can have an accident and most people will use health related services in their life, just like car insurance you have to have it as a "what if". Of course insurance also helps to promote wellness and prevention meaning in theory a healthier population now will help to curb treatment costs of older Americans.
Remember if you are one of the millions of Americans without health insurance apply for your State's health insurance marketplace today to see if you qualify for free or low cost coverage and avoid paying ObamaCare's individual mandate fee.