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 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.

To avoid the penalty you needed coverage that started by May 1st, 2014. If you missed the deadline you’ll have to wait until the marketplace opens again on November 15th, 2014 to get marketplace coverage 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 a individual shared responsibility fee. The fee works like this: if you don’t have insurance in 2014 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 in that taxable year then you don’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 marketplace insurance, most private major medical plans off the marketplace, Medicare, Medicaid and CHIP, most employer based coverage, 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 due to insurers 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. In 2014 all Americans qualified for an exemption allowing them to enroll in a plan that started by May 1st, 2014 and avoid the fee.

Coverage Gap Exemptions and Deadlines for ObamaCare Individual Mandate

Although the mandate started January 1st, 2014 you have a 3 month grace period, due to a “short coverage gap” exemption, allowing you less than 3 months in a row without coverage in 2014 (this covered January through March for lots of folks).

There is another coverage gap exemption that applies to those who purchased coverage between March 15th and April 15th, 2014 (this covers April since your coverage won’t start until May 1st, 2014.) See below for more details on exemptions.

Moving forward into 2015 everyone is allowed a 3 month “short coverage gap” exemption once per year.

How Much is the Penalty for Not Having Insurance?

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

NOTE: The maximum penalty cannot exceed the national average yearly premium for a bronze plan. Also not the fee is 1/12 of the total fee, per household member, for each month they go without coverage.

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 exemptions.

minimum essential coverage

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.

Individual Mandate Facts

Beyond the overview above are a few things that every American should know about ObamaCare’s individual mandate:

• You needed to enroll in minimum essential coverage that started no later than May 1, 2014 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 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 short coverage gap of 3 consecutive months in a year and will be exempt from the fee for these months. In 2014 a second exemption covered an additional month.

• 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:

How the ObamaCare Tax Penalty Works

Your tax penalty (shared responsibility fee) for not having insurance is paid on 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)

• 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 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 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.

individual mandate

The Latest Date You Can Sign Up For ObamaCare

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

If you enrolled in a health insurance plan through the Marketplace before March 31, 2014, you won’t have to make the payment for any month before your coverage began.

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

For example, if you enroll in a Marketplace plan on March 31 your coverage begins on May 1. If you didn’t have coverage earlier in the year, you won’t have to pay a penalty for any of the previous months of 2014.

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

Find your your state’s health insurance marketplace.

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.

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
  • 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 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)

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, and 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 will not help you avoid the fee on their own, although they will help you be covered health-wise.

Not sure if your plan will help you avoid the fee? Simply 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 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.

If you belong to any of the groups listed below you are exempt from ObamaCare’s mandate to “obtain minimum essential coverage” (i.e. buy insurance):

Unaffordable coverage options Exemption. 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)

Hardship. 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.

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 needed a plan that started by May 1st, 2014 to avoid the per month fee in 2014. You are allowed one coverage gap of three months or less per year.

NOTE: There is another coverage gap exemption that applies to those who purchased marketplace insurance between March 15th and April 15th, 2014 (that coverage won’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 tribe.

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.

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 now qualify for a hardship exemption in 2014. That means you won’t have to pay the fee if you decide to go without insurance and will qualify for a low premium, high out-of-pocket catastrophic plan on your State’s health insurance marketplace. This change does not affect your ability to get subsidies or purchase other marketplace plans.

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.

ObamaCare Sign-up Date Exemptions Explained

Although the law says you’ll need insurance by January 1st, 2014 you technically have a 3 month “short coverage gap” exemption which will allow you less than 3 months in a row without coverage in 2014 without being responsible for the fee for not having insurance. There was also a hardship exemption that essentially gave folks until April 19th to enroll in a plan if they signed up for the marketplace but had issues. This inadvertently gave everyone an exemption as long as their plan started by May 1st, 2014.

What If My Plan Started After May 1st, Do I Owe the Fee?

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 go without minimum essential coverage or an exemption. Please note some folks may 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 get 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 can be consecutive or must be separated by being enrolled in a plan. To be safe we strongly suggest getting and maintaining coverage throughout the year and thus complying with the law as written and not relying on last minute exemptions, updates and rulings. Better safe than sorry. We will be researching this one and updating everyone with details.

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.

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.

 

ObamaCare Tax Penalty: The Individual Mandate
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