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Will you owe a penalty under Obamacare?

After growing in 2015 and 2016, the flat-rate penalty is unchanged for 2017 and 2018. But the maximum penalty is significantly higher.

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*You are exempt from the penalty if you have one gap in coverage that lasts for less than three months in a calendar year.

** For most people, this will just be adjusted gross income from your tax return. But if you have tax-exempt interest or foreign earned income, you’ll need to add those amount to your AGI from your 1040 and put the total amount into the penalty calculator. Make sure to include income from any dependents who are required to file a tax return.

Although the ACA includes provisions to make it easier to get health insurance — including Medicaid expansion, premium subsidies, and guaranteed-issue coverage — it also includes an individual mandate that requires Americans to purchase health coverage or face a tax penalty.

The individual mandate penalty is a necessary part of a system that provides coverage for pre-existing conditions (there was never a penalty back when insurers were allowed to reject applicants with pre-existing conditions), but it’s also the least-popular consumer-facing provision of the ACA. Most Americans have health insurance, though, and don’t need to worry about the penalty for being uninsured.

But how much is the ACA’s individual mandate penalty, and who has to pay it? Despite the ACA’s gains in reducing the uninsured rate, there are still millions of Americans who don’t have coverage, for a variety of reasons. Some are temporarily uninsured, while others face a more permanent lack of insurance. And some are currently insured but facing the possibility of being uninsured in the future.

So let’s take a look at how the penalty works, why it was included in the ACA, how many people it affects each year, and how much it costs.

Must you pay?

Use our calculator to see if your family may be subject to a penalty for not having health insurance. But understand that even if you’re uninsured, there’s a good chance that you might be eligible for an exemption from the penalty. The exemptions are explained in more detail here.

If, for whatever reason, you decide not to purchase coverage, you can use the calculator on this page to determine the size of the penalty you would pay. (Find out how the formula for our calculator works in the box at the bottom of this page.)

Uninsured tax filers more likely to get an exemption than a penalty

Although there were still 33 million uninsured people in the US in 2014, the IRS reported that just 7.9 million tax filers were subject to the penalty in 2014 (out of more than 138 million returns). According to IRS data, 12 million filers qualified for an exemption.

The number of filers subject to the ACA’s penalty was lower for 2015 (on returns that were filed in 2016), as overall enrollment in health insurance plans had continued to grow. The IRS reported in January 2017 that 6.5 million 2015 tax returns had included individual shared responsibility payments. But far more people — 12.7 million tax filers — claimed an exemption for the 2015 tax year.

A full list of exemptions (and how to claim them) is available here. One of the exemptions applies to people who experience a single short gap in coverage during the year, with the gap being less than three months in duration. That exemption gets a lot of questions, so we’ve explained it in more detail here.

Most Americans aren’t affected by the penalty

As noted above, only 6.5 million tax returns for 2015 included the ACA’s individual mandate penalty. The vast majority of tax filers had health insurance, and even among those who didn’t, penalty exemptions were more common than penalty assessments.

Most Americans already get health insurance either from an employer or from the government (Medicaid, Medicare, VA); they don’t need to worry about the penalty, because employer-sponsored and government-sponsored health insurance count as minimum essential coverage.

If you still have pre-2014 individual market coverage and don’t qualify for a premium subsidy on a new plan, you may still be able to keep your existing plan throughout 2018: If you have a grandfathered plan, you can keep it as long as your carrier is still allowing it to renew and remain in force. If you have a grandmothered plan that is allowed to renew again for 2018 (in most states, carriers still have that option), you can keep your existing coverage. In both cases, you’re not subject to the penalty, since grandmothered and grandfathered plans are considered minimum essential coverage, despite not being compliant with the ACA.

People who enroll in coverage through health care sharing ministries are exempt from the ACA’s penalty. The coverage is not as robust or regulated as it would be on an ACA-compliant plan, and health care sharing ministries are not considered minimum essential coverage. But sharing ministries have one of the exemptions under the ACA.

You also have the option to purchase any of the individual market major medical plans available on or off-exchange in your area in order to avoid the ACA’s penalty (keep in mind that plans that aren’t considered major medical coverage are not subject to the ACA’s regulations, and do not count as minimum essential coverage, meaning you’ll be subject to the penalty if you rely on something like a short-term plan and are not otherwise exempt from the penalty. Things like accident supplements and prescription discount plans may be beneficial, but they do not fulfill the requirement maintain health insurance).

Although the premium for a new plan will be higher than your old, non-ACA-compliant plan if you’re not eligible for premium subsidies (but quite possibly lower if you are eligible for subsidies), your coverage will likely be more comprehensive thanks to the ACA’s consumer protections and mandated essential health benefits. You have until December 15, 2017 to enroll in a plan for 2018 (open enrollment for 2018 coverage is much shorter in most states than it’s been in the past, so be prepared for that).

How stiff will your penalty be? If you have a fairly high income, the maximum penalty rose sharply in 2017.

The IRS reported that for tax filers subject to the penalty in 2014, the average penalty amount was around $210. That increased substantially for 2015, when the average penalty was around $470. Final data for 2016 won’t be available until early 2018, but the IRS published preliminary data showing penalty amounts on 2016 tax returns filed by March 2, 2017. At that point, 1.8 million returns had been filed that included a penalty, and the total penalty amount was $1.2 billion — an average of about $667 per filer who owed a penalty.

Although the average penalties are in the hundreds of dollars, the ACA’s individual mandate penalty is a progressive tax: if a family earning $500,000 decided not to join the rest of us in the insurance pool, they could owe a penalty of more than $16,000 for 2017. But to be clear, the vast majority of very high-income families do have health insurance.

Today, the median net family income in the United States is roughly $56,500 (half of U.S. families earn less; half earn more.) For 2017, the penalty for a middle-income family of four earning $60,000 would be $2,085 (the flat rate penalty would be used, because it’s larger than the percentage of income penalty; see details below, under “how the penalty works”). This is far less than the penalty a more affluent family would pay based on a percentage of their income.

The penalty can never exceed the national average cost for a bronze plan, though. The penalty caps are readjusted annually to reflect changes in the average cost of a bronze plan:

  • The IRS announced in Revenue Procedure 2015-15 that the maximum 2015 penalty was $2,484 for a single individual and $12,420 for a family of five or more (both slightly higher than the maximum penalty amounts for 2014).
  • For 2016, Revenue Procedure 2016-43 increased the maximum penalty to $2,676 for a single individual, and $13,380 for a family of five or more, if they were uninsured in 2016.
  • For 2017, Revenue Procedure 2017-48 increased the maximum penalty to $3,264 for a single individual, and $16,320 for a family of five or more. The significant rate increases that we saw for 2017 (roughly 25 percent) mean that the average bronze plan is quite a bit more expensive in 2017 than it was in 2016. And that means that the maximum penalty is also quite a bit higher.

The maximum penalties rarely apply to apply to very many people, since most wealthy households are already insured.

Trump Administration has NOT changed the ACA penalty

Millions of Americans have enrolled in ACA-compliant health plans over the last four years, and the uninsured rate is far lower than it was in 2013, before the bulk of the ACA’s provisions took effect. After reaching an all-time low in 2016, however, the uninsured rate has started to creep back up in 2017, with 11.7 percent of the population uninsured in the second quarter of the year, up from 10.9 percent in the second half of 2016.

And under the Trump Administration, there has been a widespread belief that the individual mandate is no longer being enforced, which could be part of what’s driving the uninsured rate back up again (unsubsidized premiums are also sharply higher in 2017 than they were in 2016, which is also likely a factor for people who don’t qualify for premium subsidies — and the same thing is happening for 2018).

However, the individual mandate penalty is still in place, and Tim Jost reports at Health Affairs that it is indeed still being enforced.

There are a variety of reasons that nearly 12 percent of the population is uninsured. Some are in the Medicaid coverage gap, some are undocumented immigrants, some are impacted by the family glitch (in all of those cases, exemptions from the individual mandate are available).

But some folks simply do not want to purchase coverage, or disagree with the ACA in terms of what they consider “affordable.” If you’re among them, one of your concerns will be whether you’ll be subject to a tax that’s built into the law – and if you are, what penalty you might expect to pay.

In the early days and weeks after Donald Trump won the presidential election, the expectation was that Republicans in Congress would finally be able to repeal at least some aspects of the ACA; the individual mandate penalty was generally at the top of their list of things to eliminate.

But their efforts stalled — for the time being — when Republicans in the Senate failed to pass three different versions of the ACA repeal bill that House Republicans had passed in May (the American Health Care Act). The House bill and all three Senate versions would have eliminated the individual mandate penalty retroactively to the start of 2016. If that provision had been enacted, the individual mandate penalty would have disappeared for 2017, and the IRS would have had to issue refund checks to people who paid the penalty for being uninsured in 2016.

The Congressional Budget Office (CBO) estimated that if the legislation had passed, individual market premiums would have been 15 to 20 percent higher in 2018 (compared with what they would otherwise have been in 2018, not compared with what they are in 2017), mainly due to the elimination of the penalty and the impact that would have had on the risk pool: Healthy people would have been more likely to drop their coverage, while sick people would have retained coverage.

But that did not come to pass, and for the time being, the individual mandate penalty remains in place. Although the clock ran out in September for a reconciliation bill to repeal the ACA in 2017, Republican lawmakers are trying to pass tax reform legislation that would include a repeal of the individual mandate penalty. The future of the penalty is still up in the air, but as of November 2017, nothing has changed about it.

Earlier in 2017, following Trump’s Executive Order directing federal agencies to be as lenient as possible in their enforcement of the ACA, the IRS published a statement indicating that they would continue to accept “silent returns” for 2016 (ie, tax returns with the question about whether or not the filer had health insurance left blank).

This is the same protocol that was followed for 2014 and 2015 returns, but prior to Trump’s Executive Order, the IRS had planned to reject 2016 returns that didn’t answer the question one way or the other. Their change in course was likely a result of the Executive Order, but all it did was maintain the status quo that had existed for the past two years. Nothing else changed, and everything about penalty enforcement is still the same as it was in previous years (the penalty is higher than it was in prior years, but enforcement is unchanged).

But starting with the 2018 tax filing season, the IRS has said that they will no longer accept “silent” returns. For the first time, tax filers will have to indicate on their tax return whether they had health insurance during the previous year, and leaving the question blank will no longer be an option.

health-reform-penalty

How the penalty works

Your tax is the greater of either 1) a flat-dollar amount based on the number of uninsured people in your household; or 2) a percentage of your income (up to the national average cost of a Bronze plan , as determined by the IRS and adjusted annually to reflect changes in premiums).

This means wealthier households will wind up using the second formula, and may be impacted by the upper cap on the penalty. For example: for 2017, an individual earning less than $37,000 would pay just $695 (flat-dollar calculation) while an individual earning $200,000 would pay a penalty equal to the national average cost of a bronze plan ($3,264 for 2017). This is because 2.5% of his income above the tax filing threshold would work out to about $4,740, which is higher than the national average cost of a bronze plan.

1) Flat-dollar amount

In 2014, the flat-dollar penalty was $95 per uncovered adult (it climbed to $325 in 2015, and $695 in 2016) plus half that amount for each uninsured child under age 18. Your total household penalty is capped at three times the adult rate, no matter how many children you have. In 2014, that was $285 ($975 in 2015, and $2085 in 2016). Starting in 2017, the flat-rate penalty is subject to annual adjustment for inflation. But for 2017, the IRS confirmed that there was no inflation adjustment, so the flat-rate penalty continued to be $695 per adult in 2017, with a maximum of $2,085 per family. And for 2018, that will again be the case, as the IRS has confirmed that the flat rate penalty will remain unchanged in 2018.

2) Percentage of income

In 2014, the penalty was 1 percent (it rose to 2 percent in 2015, 2.5 percent in 2016 and beyond). The penalty is capped at the average cost of a Bronze plan, which for 2017 is $3,264 for an individual and $16,320 for a family of five or more; this cap adjusts annually to keep up with the average cost of Bronze plans. Wealthy households will be happy to know that they will pay a penalty only on that portion of their adjusted gross income “above and beyond their filing threshold,” explains the Center on Budget Policy and Priorities‘ Judy Solomon.

But if you use the calculator above, you don’t have to look up your filing threshold. Just enter your adjusted gross income and our calculator will do the rest. For most people, this will simply be adjusted gross income from your tax return. But if you have non-taxable Social Security benefits, tax-exempt interest, or foreign earned income and housing expenses for Americans living abroad, you’ll need to add those amount to your AGI from your 1040 and put the total amount into the penalty calculator. Be sure to include income from any dependents who are required to file a tax return.

You won’t pay a penalty if:

  • You are covered by your employer.
  • You are covered by the government
    (Medicare, Medicaid, CHIP, TRICARE or the VA).
  • You already have purchased coverage that – at a minimum – meets the requirements for a Bronze plan under the ACA.
  • Your income is low enough that your share of premiums (after federal subsidies and employer contributions) would total more than 8 percent of your income (this is increasing to 8.16 percent for 2017).
  • Your income is below the income tax filing threshold.
  • You had a short gap in coverage during the year, that lasted no more than three months (if you’re uninsured for more than three months, the penalty is prorated).
  • You qualify for a religious exclusion.
  • You are a member of a Native American tribe.
  • You are an undocumented immigrant.
  • You are in prison.
  • You qualify for a hardship exemption.
  • People who enrolled near the end of the 2014 open enrollment window and had coverage effective May 1, 2014 are still exempt from the penalty as long as they maintained coverage the rest of the year, even if they had no coverage for the first four months of 2014.
  • If your health plan was cancelled as a result of the ACA, and you don’t believe the new options available to you are affordable, you qualify for a hardship exemption and you’re also eligible to purchase a catastrophic plan regardless of your age. If you qualify for a hardship exemption because your plan was cancelled in 2013 or is being cancelled in 2014, your exemption (and eligibility for a catastrophic plan) is valid through October 1, 2016.

Frequently Asked Questions about the Individual Mandate and the Tax

Q. How long can I be uninsured before I have to pay the individual mandate penalty?

Q. What are the ACA’s enrollment periods and when can I enroll outside of the open enrollment period?

Q. I work at a large corporation that offers health insurance, but it’s expensive and I don’t feel I need it. Under Obamacare, can my company force me to sign up?

Q. Is it true that government can’t really enforce the penalty for not having health insurance?

Q. If the IRS doesn’t owe me a refund, how does it enforce the individual mandate penalty?

Q. Does the president’s executive order mean the IRS won’t enforce the individual mandate penalty?

Q. I have insurance through my husband’s employer, so I don’t need my employer’s coverage. But my company said I have to work fewer than 30 hours a week so that I’m not considered full time. Can I just waive my employer’s coverage if they let me work full time?

Q. Is there a minimum age for Obamacare’s individual mandate?

Q. If I owe income tax and the ACA penalty but don’t plan to pay the ACA penalty, will the IRS apply my payment to my penalty or to my income tax?

Q. What happens if I don’t buy ACA-compliant health insurance?

Q. Who is keeping track of whether I buy health insurance through the exchanges?

Q. If I pay the tax for not purchasing health insurance, does that buy me an insurance policy?

Q. When I file my taxes, my preparer asks me if I have health insurance. How is that any of their business?

Q. I can’t enroll in my employer-sponsored plan until July. Do I have to pay a penalty for the first half of the year?

Q. Is the Obamacare individual mandate just based on the honor system?

Q. I didn’t know I was eligible for Medicaid this year, so I didn’t enroll. Will I have to pay a penalty?

Q. What happens if I buy insurance but it doesn’t meet ACA’s minimum essential benefits standards?

Q. Will every business with more than 50 employees pay a penalty if it doesn’t offer ‘affordable, comprehensive’ insurance?

Q. If I decide to gamble and go without insurance, isn’t that my business?

Q. If I say ‘No!’ to Obamacare and buy my coverage outside of the exchanges, will I have to pay a penalty if the benefits don’t meet Obamacare’s standards?

Q. Is it true that Obamacare’s preventive care mandates only help women?

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