Individual Shared Responsibility Payment Under the Affordable Care Act

The health insurance penalty remains in effect for 2018 returns

Uninsured? You may have to pay a tax for not having health insurance.
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Individuals were first required to purchase health insurance for themselves and for their dependents under the terms of the Affordable Care Act (ACA) in January 2014. Individuals who didn't have health insurance for one or more months during the tax year risked having to pay an additional tax, called the individual shared responsibility payment, if they didn't qualify for an exemption.

The payment was sometimes the "Obamacare penalty" because it essentially punished people for not carry health insurance...but only through tax year 2018. The penalty expired as of Jan. 1, in 2019. 

The Tax Cuts and Jobs Act 

When the Tax Cuts and Jobs Act went into effect in 2018, it eliminated this tax penalty. The ACA is still very much alive and well, however, and you're still required to purchase health insurance. It's just that beginning in 2019, you won't be subject to a financial penalty if you don't.

You must still deal with the individual shared responsibility payment on your 2018 tax return if your insurance lapsed or you didn't carry coverage in that tax year.

Who Is Subject to the Shared Responsibility Payment? 

The individual shared responsibility payment applies to almost all citizens or resident aliens of the U.S., with some notable exceptions. Americans residing in foreign countries or in the American territories are not required to obtain health insurance. There are numerous other exemptions as well, and you can dodge the penalty by checking a box near the top of the 2018 Form 1040 tax return, indicating that you qualify for one of them.

The payment applies when you or anyone in your "shared responsibility family" doesn't have the type of health insurance coverage required by law for at least one day during any month of the year—unless one of the exemptions applies. The penalty is calculated monthly, per person. Your "shared responsibility family" means you, your spouse if you're married and filing a joint return, and anyone you're eligible to claim as a qualifying child or qualifying relative dependent.

You must pay the shared responsibility payment for a dependent even if you choose not to actually claim him as a dependent on your tax return. 

Minimum Essential Coverage

The ACA requires that you carry health insurance that provides "minimum essential coverage." This means that you have one of the following types of policies:

  • Children's health insurance program (CHIP)
  • COBRA coverage
  • Department of Defense Non-appropriated Fund Health Benefits Program
  • Group health insurance coverage through your employer
  • Health care coverage provided to the Peace Corps volunteers
  • Health care coverage through the Department of Veterans Affairs
  • Insurance purchased individually
  • Insurance through a student health plan at college or university
  • Medicaid plans (except limited-coverage plans)
  • Medicare Advantage plans
  • Medicare Part A
  • Refugee Medical Assistance
  • Retiree coverage through your former employer
  • State high-risk health insurance pools
  • TRICARE plans (except limited-coverage plans)

The shared responsibility payment does not apply to you if you have one of these types of health insurance—at least if you had it all year. Otherwise, the shared responsibility payment must be calculated in two ways. You're responsible for paying whichever calculation amounts to more.

The "Percentage Amount" Calculation

The "percentage amount" calculation is 2.5 percent of your income over the year's filing threshold for tax years 2016 through 2018. The filing threshold is how much you can earn in that year before you're required to file a tax return. In 2018, it's the same as the standard deduction for the 2018 tax year.

The 2018 standard deduction for single taxpayers is $12,000. If a taxpayer had gross income of $52,000, the percentage penalty for not carrying insurance would work out to $1,000, or 2.5 percent of $40,000, which is the amount over the filing threshold.

The threshold is $18,000 for heads of household, $24,000 for married couples filing jointly and qualifying widow(er)s, and $12,000 for married individuals who choose to file separate returns.

The "Flat Dollar" Amount

The other calculation is the "flat dollar amount." As the name implies, it's a dollar amount assigned to each individual in your shared responsibility family who wasn't covered by insurance for the full year. It's $695 for each adult and $347.50 for each child, with a family maximum of $2,085 in tax years 2016, 2017, and 2018.

That single taxpayer who earned $52,000 a year would therefore owe $1,000 for the shared responsibility payment because this is more than the flat dollar amount for one adult individual. 

If You Had Insurance for Some of the Year

Calculations get more complicated if you had insurance coverage during some months but not others. In this case, you must pay a monthly penalty amount for each of the months during which you did not have coverage. 

The monthly penalty amount is one-twelfth (1/12th) of the greater of the flat dollar amount or the excess income amount, whichever you must pay because it's more. These monthly penalty amounts are then multiplied by the number of months you were not covered by health insurance and did not qualify for an exception.

Confused? The IRS obligingly provides several penalty calculators on its website to help you along.

How to Pay the Shared Responsibility Payment

Shared responsibility payments are due by April 15 following the end of the year—in other words, by tax day. They can be paid through withholding, estimated payments, payments made with an extension, or when you remit a tax payment when your tax return is filed.

It's certainly possible that you might have already paid in enough through withholding, estimated payments, and/or refundable tax credits that you wouldn't have to make an additional payment specifically for the shared responsibility penalty. In this case, you'd just receive less of a refund because the shared responsibility payment is added to your total tax liability.

In some cases, however, the shared responsibility payment can turn what would otherwise be a refund into a balance due. It could potentially be more than any refund you're entitled to. It might even increase your tax debt, adding on to what you already owe the IRS. In this situation, you should try to pay any balance by the April 15 deadline. 

Report the shared responsibility payment on line 61 of Schedule 4 of the new 2018 Form 1040. You'd then transfer the total of all taxes you've entered on Schedule 4 to line 14 of the 1040.

What If You Don't Pay? 

The Internal Revenue Service will send you a series of notices requesting payment if you don't remit any balance due by April 15. Interest will accrue on unpaid shared responsibility payments from the due date of the payment. But here's a bit of good news.

The IRS is not permitted to assess late payment penalties, to issue a federal tax lien, or to levy your wages or bank account for any unpaid shared responsibility payments. This doesn't mean you're totally off the hook, however. You still owe the penalty. It's just that the IRS is somewhat limited as to what it can do to collect it from you. 

The IRS can and will collect the money from any tax refunds you might be entitled to in future years. The IRS has 10 years from the date you file your tax return to collect any unpaid shared responsibility payments.

If you can't afford to pay the shared responsibility payment in full, consult with a tax professional or call the IRS to review what options are available to you. You might be able to set up a monthly payment plan.

And remember, you're off the hook when you file your 2019 tax return in 2020. You can take comfort in knowing that 2018 is the last year you'll have to deal with this.

NOTE: Tax laws change periodically and the above information might not reflect the most recent changes. Please consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.