Individual Shared Responsibility Payment Under the Affordable Care Act

The penalty for not having health insurance is about to expire

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 their dependents under the terms of the Affordable Care Act in January 2014. Individuals who don't have health insurance for one or more months during the tax year might have to pay an additional tax called the individual shared responsibility payment.

This payment essentially penalizes people for not having health insurance...but only through tax year 2018. The penalty is set to expire 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 Affordable Care Act 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 still have to deal with the individual shared responsibility payment in 2018. Here's how it works. 

Who Is Subject to the Shared Responsibility Payment? 

The individual shared responsibility payment applies to all citizens or resident aliens of the U.S. but with some notable exceptions. Americans residing in foreign countries or in the American territories are not required to obtain health insurance. There are 12 exceptions to the shared responsibility payment. If you qualify for one of them, you can dodge the penalty by checking a box on your tax return.

The payment applies when you or anyone in your "shared responsibility family" does not 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 exceptions applies. The penalty is calculated for each month that you or a family member does not have health insurance coverage.

The phrase "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 you have one of the following policies:

  • Children's health insurance program (CHIP)
  • COBRA coverage
  • Department of Defense Nonappropriated 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 (for 2014 only; we are waiting to see if these programs will qualify for 2015 and later years)
  • 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, you're required to either pay the shared responsibility payment or indicate on your tax return that one or more of the exceptions apply. 

How the Shared Responsibility Payment Is Calculated

The shared responsibility payment must be calculated in two ways. You're responsible for paying whichever calculation amounts to more.

The "percentage amount" calculation is 2.5 percent of your income over the year's filing threshold as of 2018. The filing threshold is based on gross income and it's how much you can earn in that year before you're required to file a tax return. This is based on your filing status and age.

The threshold was $10,400 in 2017 for single taxpayers under age 65. If a taxpayer had gross income of $50,400, the percentage amount penalty for not carrying insurance would work out to $1,000, or 2.5 percent of $40,000. This threshold will be adjusted in 2018 to allow for inflation, but it should be only a slight increase. 

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 was not covered by insurance for the full year. In 2018, this works out to $695 for each adult and $347.50 for each child with a family maximum of $2,085.

So the single taxpayer who earned $50,400 a year would therefore owe at least $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 in 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.

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 paid in enough tax through withholding, estimates, and/or refundable tax credits that you wouldn't have to make additional payments specifically for the shared responsibility penalty. In this case, you'd just receive less of a refund, if any, 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. Or it might increase what you owe the IRS. In this situation, you should pay any balance by the April 15 deadline. 

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.

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.