ObamaCare’s Individual Mandate: What is the Tax Penalty for Not Having Health Insurance?

ObamaCare’s individual mandate requires that most Americans obtained health insurance by 2014 or pay a tax penalty. The individual mandate went into effect January 1st, 2014. The penalty will be applied to your year-end federal modified adjusted gross income for each month you don’t have health insurance or an exemption.

The fee is technically called a Individual Shared Responsibility Payment and is part of the Affordable Care Act’s Shared Responsibility Provision.

How to Avoid ObamaCare Penalty Fee in 2015

To avoid the penalty you must obtain minimum essential coverage during open enrollment and maintain it throughout the year, or get an exemption.  The fee is owed for each month you go without coverage or an exemption. If you miss the deadline for open enrollment, you’ll have to wait until the marketplace opens again to get covered, unless you qualify for a special enrollment period.

ObamaCare Tax PenaltyWhat 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 an Individual Shared Responsibility Payment. The fee works like this: if you don’t have insurance in 2015 or obtain an exemption, you get charged a fee for every month you don’t have insurance on your year-end MAGI taxable income. If you have coverage for at least one day within the taxable year, then you won’t owe the payment for that month.

Check out the official IRS website on exemptions and the Individual mandate for additional details.

Individual Mandate Summary

We will cover each aspect of ObamaCare’s individual mandate on this page. First, however, here is a quick overview of the individual mandate.

To Avoid the Fee You’ll Need Minimum Essential Coverage

The type of coverage you’ll need to avoid the fee is called minimum essential coverage. Minimum essential coverage includes all marketplace insurance, most Private Major Medical Plans sold outside the marketplace, Medicare, Medicaid and CHIP, most employer-based coverage, grandfathered health plans, and more.

Short term plans and other non-compliant plans purchased outside of open enrollment don’t comply with ObamaCare’s individual mandate! In most cases, you can only obtain private insurance that counts as minimum essential coverage during each years open enrollment because insurers are unofficially adopting marketplace enrollment periods.

You Need to Obtain and Maintain Minimum Essential Coverage

To comply with the mandate, you’ll need to not only Obtain Coverage, but maintain it throughout the year unless you qualify for an exemption.

Coverage Gap Exemptions and Deadlines for ObamaCare Individual Mandate

Although the mandate started January 1st, 2014, you have a consecutive 3 month grace period each year due to a “short coverage gap” exemption.  This exemption allows you less than 3 consecutive months without coverage each year.

How Much is the Penalty for Not Having Insurance?

The annual fee for not having insurance in 2015 is $325 per adult and $162.50 per child (up to $975 for a family) or 2% of your taxable income, whichever is greater. You’ll pay 1/12 of the total fee, per household member, for each month they go without coverage.

The annual fee for not having insurance in 2014 is $95 per adult and $47.50 per child (up to $285 for a family) or 1% of your taxable income, whichever is greater.  You’ll pay 1/12 of the total fee, per household member, for each month they go without coverage.

The fee for not having insurance increases each year.

See the “How the ObamaCare Tax Penalty Works” section below for important details because the specifics of the law are more complicated than that.

NOTE: The maximum penalty cannot exceed the national average yearly premium for a bronze plan.

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Individual Mandate Exemptions

Many Americans will be able to avoid the fee by applying for an exemption. Even if you obtain an exemption, you may still find affordable coverage options through Medicaid, catastrophic coverage, or the Marketplace.

According to the CBO: Almost 90% of the 30 plus million Americans without insurance will not pay the penalty for not having insurance in 2016, mostly due to the number of exemptions.

The following video explains the Individual Mandate tax penalty:

How the ObamaCare Tax Penalty Works

Your tax penalty (Individual Shared Responsibility Fee) for not having insurance is paid with your federal income taxes at the end of the year. If your taxable income is below 133% of the Federal Poverty Level, you are exempt from this tax.

2014 = $95 per adult and $47.50 per child per year | or 1% of your income (whichever is greater)

2015 = $325 per person and $162.50 per child per year | or 2% of your income (whichever is greater)

2016 = $695 per person and $347.50 per child per year | or 2.5% of your income (whichever is greater)

2017 = Tax Penalty will increase by the rate of inflation going forward | or 2.5% of your income (whichever is greater)

• The fee is annual, so, if you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured.

• The penalty is based on your families modified adjusted gross income (MAGI) and is paid on your federal income taxes.

• 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 were without health insurance, though there is no penalty for a single gap in coverage of less than 3 months during each year.

• Health insurance plans will provide proof of coverage for their customers, so as long as they have health insurance, in the form of a 1095 A, 1095 B, or 1095 C. NOTE: These are sent to you at the end of each year from your insurer, if you had more than one insurer during the year you should receive one from each.

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How Do I Pay the Fee?

When you file your taxes you’ll calculate your Individual Shared Responsibility payment for each month you or a dependent went without coverage. Your insurer will send you a 1095-A, 1095-B, or 1095-C form that will show what months you had coverage and how much assistance you got. If you had an exemption for any months you may need a ECN number provided by your state’s Health Insurance Marketplace. Learn how to file your taxes for the ObamaCare fee.

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  from the Federal Income Tax Refund you would get back from the IRS after filing your income tax return. The IRS cannot enforce the Individual Shared Responsibility provision with jail time, liens, or any other typical methods of collection.

Individual Mandate Facts

Including the information above, there are a few things that every American should know about ObamaCare’s individual mandate:

• You need to enroll in minimum essential coverage during open enrollment period each year if you want to avoid the per month fee for not having coverage.

• 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 buying the cheapest plan on the health insurance marketplace would cost you more than 8% of your household income, after subsidies, you are exempt from the mandate.

• If your employer-based coverage costs more than 9.5% of employee only income, you can use the marketplace to shop for a plan.

• You are exempt from the mandate if employer-based coverage, that is considered affordable for the employee, costs more than 8% of your household income for a dependent.

• You are allowed a short coverage gap of 3 consecutive months within a year and will be exempt from the fee for these months.

• Most employer based coverage, Medicare, Medicaid, CHIP, private insurance, as well as, all insurance purchased through your State’s marketplace are considered minimal essential coverage.

• The requirement to obtain health coverage is 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 was officially declared a tax by the supreme court on June 28, 2012.

• The Individual Mandate is technically called the “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 mandate to have insurance 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.

The Shared Responsibility Provision

The Individual Mandate is officially called the “Individual 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 (also 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.

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, as well as, 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 insurance market, including a qualified health plan offered by the Health Insurance Marketplace (also known as 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
  • TRICARE
  • 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 Health and Human Services (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 Health and Human Services (HHS) to be recognized as minimum essential coverage.

What Doesn’t Count 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, or Medicaid covering only certain benefits such as family planning, workers’ compensation, or disability policies.

Most insurance types offered between each years open enrollment will be short term health insurance, fixed benefit plans and supplemental insurance. They will not help you avoid the fee on their own, but they will help you be covered health-wise.

Not sure if your plan will help you avoid the fee.  Ask your insurer whether or not your plan is “ACA compliant” or counts as “minimum essential coverage”.

Learn more about Minimum Essential Coverage here.

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. They help reduce premium costs and lower out-of-pocket expenses. ObamaCare’s subsidies are available to people with incomes between 100% to 400% of the FPL (Federal Poverty Level). Those making less than 138% FPL may qualify for Medicaid, if their state expanded Medicaid.

NOTE: If your state has not expanded Medicaid, you qualify for an exemption, but you must apply for Medicaid in your state and be denied coverage.

The current 138% FPL, which changes each year, is $16,105 for an individual and $32,913 for a family of four.  Some will qualify for an exemption from the fee and will still be eligible for cost assistance subsidies.

Nearly 26 million Americans may be eligible for subsidies to buy health insurance under ObamaCare. Find out how to apply for the Health Insurance Premium Tax Credits for cost-assistance on the ObamaCare Health Insurance Marketplace using our Health Insurance Marketplace Guide.

The Latest Date You Can Sign up for ObamaCare

You need to sign up for ObamaCare before the end of open enrollment each year, qualify for an extension, or exemption.

If you enrolled in a health insurance plan through the Marketplace before February 15th, 2015, you won’t have to pay the fee for any month before your coverage began in 2015. Moving forward, you must obtain coverage during open enrollment to avoid the fee.

Marketplace coverage always starts on the first day of a month. To qualify, you must have enrolled by the 15th day of the previous month.

If you missed open enrollment, you’ll need to wait until the next enrollment period to use the marketplace or qualify for special enrollment. Find out more about open enrollment.

Find your your states’ Health Insurance Marketplace.

More Information on the ObamaCare Tax Penalty For Businesses

See our ObamaCare Employer Mandate page for more information on the Employer Shared Responsibility Fee for employers with more than 50 full-time equivalent employees. Those with less than 25 full-time equivalent employees can qualify for tax subsidies up to 50% of their cost towards employees’ premiums.

ObamaCare Exemption: How to Avoid the ObamaCare Tax Penalty

Those who have insurance through their employment or currently have an insurance plan, have nothing to worry about when it comes to the tax penalty. Those on Medicare or Medicaid are also exempt. Aside from this, Americans below the %133 FPL threshold are exempt. If your state did not expand Medicaid, you are exempt. If the only coverage available to you is unaffordable (more than 8% your taxable income), you are exempt. Overall, around 26 million Americans will be exempt from the tax penalty. Many exemptions require you to apply for an exemption and provide documentation.

If you belong to any of the groups below you are exempt from ObamaCare’s mandate to “obtain minimum essential coverage” (i.e. buy insurance) and you will not have to pay the fee:

Unaffordable Coverage Options- People who would have to pay more than 8% percent of their household income for health insurance.

No Filing Requirement- 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). This exemption is automatic for those who qualify.

Hardship Exemption- The Health Insurance Marketplace, also known as the Affordable Insurance Exchange, has certified that you have suffered a hardship that makes you unable to obtain coverage. There are many things that would qualify you for a hardship exemption, for example: being denied Medicaid because your State did not expand Medicaid. For see our Exemptions page a full list of Hardship Exemptions.

Short Coverage Gap Exemption- If go without coverage for less than three consecutive months during the year you will not be responsible for the fee for those months. You need a plan that starts by April 1st, 2015 to avoid the per month fee in 2015. You needed a plan that started by May 1st, 2014 to avoid the per month fee on your 2014 Federal Income Tax Return. You are allowed one coverage gap of three months, or less, per year.

NOTE: There was another coverage gap exemption that applied to those who purchased marketplace insurance between March 15th and April 15th, 2014 (that coverage didn’t start until May 1st, 2014.)

Religious Conscience- People who qualify for religious exemptions. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.

Health Care Sharing Ministry- You are a member of a recognized health care sharing ministry.

Not Lawfully Present- Undocumented immigrants; You are not a U.S. citizen, a U.S. national or an alien lawfully present in the U.S.

Incarceration- People who are incarcerated.

Indian Tribes- Members of a federally recognized Indian 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’s Marketplace Subsidies and subsidizing hospitals to cover unpaid emergency room visits. The money is also a down payment on your, almost inevitable, use of the health care system.

Check out the official IRS website on exemptions and the Individual Mandate for additional details.

Hardship Exemption Update December 20th, 2013: If you had your plan canceled in 2014 due to the Affordable Care Act, you qualify for a Hardship Exemption in 2014. That means you won’t have to pay the fee if you decided to go without insurance. You will also qualify to purchase a low premium and high out-of-pocket Catastrophic Plan from Private Health Insurance Providers outside the Marketplace. This change does not affect your ability to get subsidies or purchase other marketplace plans.

For more details on exemptions go to our ObamaCare exemptions page.

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, or certain “hardships” can be claimed only as part of filing a federal income tax return.  Applying for an extension, however, is not a part of your federal income tax returns. Certain exemptions are automatic. For example, those under the federal income tax return filing threshold are exempt simply because they do not file for taxes. For most exemptions, you’ll need to apply at Healthcare.gov for an exemption. If you qualify, you will receive an Exemption Certificate Number (ECN) which you use to get the exemption from the fee on you Federal Tax Return. Processing Exemptions takes time, so don’t wait. Please see our Exemptions page for a full list of exemptions and the required documentation to apply for them, then go to Healthcare.gov to apply.

NOTE: If you qualify for an exemption, you will most likely also qualify to shop around for Catastrophic Plan from Private Insurance Companies.

ObamaCare Sign-up Date Exemptions Explained

Although the law says you’ll need insurance by February 15th, 2015, you technically have a 3 month “Short Coverage Gap Exemption.” This will allow you 3 consecutive months without coverage in 2015 before being responsible for the fee for not having insurance.

What If My Plan Started After May 1st 2014, Will I Owe the Fee on my 2014 Federal Tax Return?

If your plan started after May 1st, 2014 or you didn’t get minimum essential coverage, you’ll owe the fee for each month you went without minimum essential coverage unless you receive an exemption. Some folks will qualify for a special enrollment period due to life circumstances, so if you did obtain coverage or lose your coverage, please check an see if you qualify for a special enrollment period.

What if I Have a Coverage Gap of More than Three Consecutive Months?

If you got marketplace coverage starting after May 1st, 2014 you may not qualify for the Short Coverage Gap Exemption and owe the Shared Responsibility Fee for each month without coverage, including January through April. Although the IRS proposals on the mandate allow you to count only one coverage gap a year (in case you have more than one) it doesn’t specifically say what happens if those gaps are not consecutive, but are separated by being enrolled in a plan. To be safe, we strongly suggest getting and maintaining coverage throughout the year and complying with the law as written. Relying on last minute exemptions, updates and rulings may backfire or delay your Federal Income Tax Refund. Better safe than sorry. We will be researching this one and updating everyone with details.

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. If getting coverage for yourself (in addition to your kids) is too expensive, you will likely qualify for an exemption from the fee. You might also qualify to shop for Catastrophic coverage for yourself.

Individual Mandate: Why Do I Need to Buy Health Insurance?

The Individual Mandate and Employer Mandate are what allow ObamaCare work. The requirement to obtain insurance and to “share the financial responsibility” is the trade we all make for the minimum essential benefits, subsidies for coverage, as well as, rights and protections provided for under The Affordable Care Act.

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), rules preventing insurers from charging women more than men, 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 than 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 be 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 to cover you the “what if” scenario. Of course, insurance also helps to promote wellness and prevention.  In theory, a healthier population now will curb treatment costs of Americans as age.

Remember if you are one of the millions of Americans without health insurance, apply for your State’s health insurance marketplace today. See if you qualify for free or low cost coverage and avoid paying ObamaCare’s individual mandate fee.

 

ObamaCare Tax Penalty: The Individual Mandate
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