Individual Shared Responsibility Payment Under the Affordable Care Act

The health insurance penalty remained 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 referred to as the "Obamacare penalty" because it essentially punished people for not carrying health insurance, but only through tax year 2018. The penalty does not apply from the 2019 plan year onwards.

The Tax Cuts and Jobs Act 

The Tax Cuts and Jobs Act eliminated this tax penalty when the law went into effect in late 2017. The ACA is still very much alive and well, however, and you're still required to purchase health insurance. It's just that you won't be subject to a financial penalty if you don't, beginning in 2019.

You should still have dealt 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 Was Subject to the Shared Responsibility Payment? 

The individual shared responsibility payment applied 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 were numerous other exemptions as well, and you could dodge the penalty by checking a box near the top of the 2018 Form 1040 tax return, indicating that you qualified for one of them.

The payment applied when you or anyone in your "shared responsibility family" didn't have the type of health insurance coverage required by law for any month of the year—unless one of the exemptions applied. The penalty was calculated either as a percentage of annual household income or 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.

Minimum Essential Coverage

The ACA still 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 or Part C
  • 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 did not apply to you if you had one of these types of health insurance prior to 2019—at least if you had it all year. Otherwise, the shared responsibility payment had to be calculated in two ways. You were responsible for paying whichever calculation amounted to more.

The "Percentage Amount" Calculation

The "percentage amount" calculation was 2.5% of your income over the year's filing threshold for tax years 2016 through 2018. The filing threshold was how much you could earn in that year before you were required to file a tax return.

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

The threshold was $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 chose to file separate returns.

The "Flat Dollar" Amount

The other calculation was the "flat dollar amount." As the name implies, it was a dollar amount assigned to each individual in your shared responsibility family who wasn't covered by insurance for the full year. It was $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. You would have paid a monthly penalty amount for each of the months during which you did not have coverage in this case. 

The monthly penalty amount was one-twelfth (1/12th) of the annual amount for each month with no coverage. These monthly penalty amounts were 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 were due by April 15 following the end of the year—in other words, by tax day in most years. They were to be paid through withholding, estimated payments, payments made with an extension, or when you remitted a tax payment when your tax return was filed.

It's certainly possible that you might have already paid 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 have just received less of a refund because the shared responsibility payment is added to your total tax liability.

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

The shared responsibility payment was reported on line 61 of Schedule 4 of the 2018 Form 1040. You would then have transferred the total of all taxes you've entered on Schedule 4 to line 14 of the 2018 Form 1040.

What If You Didn't Pay? 

The Internal Revenue Service would have sent you a series of notices requesting payment if you didn't remit any balance due by April 15. But here's a bit of good news.

The IRS was 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 were totally off the hook, however. You still owed the penalty. It's just that the IRS was somewhat limited as to what it could 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 filed your tax return to collect any unpaid shared responsibility payments.

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

And remember, 2018 was the last year that taxpayers had to deal with this, unless you didn't pay in full back then.