Explanation of the Healthcare Penalty


Facts about the Individual Shared Responsibility Provision for Individuals and Families

Almost everyone will need to do something new when they file their tax return this year. The Individual Shared Responsibility provision, which is an important part of the Affordable Care Act (ACA), also known as Obamacare, calls for taxpayers to have qualifying health care coverage, qualify for a health coverage exemption or make a payment.


Reporting Health Care Coverage

Qualifying coverage — also called minimum essential coverage — includes most employer-sponsored coverage, coverage through most government-sponsored programs like Medicare, Medicaid and CHIP, and coverage purchased through the Health Insurance Marketplace.

If you and everyone else on your tax return had qualifying health care coverage, you will simply check a box to report that coverage when filing your return in 2015. For each month in 2014 that anyone on your return did not have qualifying health care coverage or qualify for a health coverage exemption, you will need to make an individual shared responsibility payment. Everyone on your return needs to maintain their qualifying health care coverage in 2015.

Claiming a Health Coverage Exemption

You may qualify for a health coverage exemption if you meet one of the following:

  • You did not have access to coverage that is considered affordable because the minimum amount you must pay for the annual premiums is more than eight percent of your household income,
  • You had a gap without coverage of less than three months, or
  • You qualify for one of several other exemptions, including having a hardship that prevented you from obtaining coverage or you were a member of a group
    explicitly exempt from the health coverage requirement.

How you obtain a health coverage exemption depends upon the type of exemption. You must apply for some exemptions through the Marketplace in the area where you live. Other exemptions are claimed only when filing an income tax return. Finally, some exemptions may be granted by the Marketplace or claimed when filing a tax return.Unless you must obtain your health coverage exemption through the Marketplace, you can claim the exemption on your 2014 income tax return filed in 2015. You will use Form 8965, Health Coverage Exemptions, to report a coverage exemption granted by the Marketplace or to claim a coverage exemption on your tax return.


Making an Individual Shared Responsibility Payment

How much is the Affordable Care Act (Obamacare) penalty? If anyone on your tax return does not have qualifying health care coverage for each month of the year and does not qualify for an exemption, you must make an individual shared responsibility payment when filing your federal income tax return in 2015.

In general, the annual payment/penalty amount is the greater of:

  • One percent of your household income above the filing threshold for your filing status (e.g., unmarried, married filing jointly, etc.), or
  • $95 per person without coverage or an exemption ($47.50 per individual under age 18), but limited to a family maximum of $285.

You will owe 1/12 of the annual payment for each month you or another person on your tax return doesn’t have either qualifying health care coverage or a coverage exemption. Your individual shared responsibility payment cannot exceed the national average premium for a bronze-level health plan available through the Marketplace which, for 2014, was $204 per month per person.

The instructions for Form 8965 provide the information you will use to calculate the payment that will be reported on your federal income tax return. You can electronically file Form 8965.

More information about the Individual Shared Responsibility provision can be found in Publication 5187, The Health Care Law: What’s New for Individuals & Families or at IRS.gov/aca.


See: Facts About the Premium Tax Credit for Individuals and Families

See: What Businesses Need to Know About the Affordable Care Act (Obamacare)

For help with the Affordable Care Act (Obamacare), or another IRS matter, contact us now at 1-949-260-4770 for a FREE consultation with our CPAs and former IRS Agents.  

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