Low Income Earners and the Individual Mandate Insurance Penalty

Patient handing health insurance card across counter at a doctor's office
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The federal individual mandate health insurance penalty imposed by the Affordable Care Act (ACA) no longer exists for any American. It doesn't matter if you're low-income, high-income, or if you fall somewhere in between—2017's Tax Cuts and Jobs Act (TCJA) dealt the penalty known as the "shared responsibility payment" a death blow. The ACA itself is still alive and well, but the TCJA effectively and indefinitely eliminated the penalty for lack of insurance beginning in the 2019 tax year.

Tax filers still had to consider this penalty in the tax years 2017 and 2018, but you might dodge it if your income was below certain thresholds. Also, keep in mind that certain states assess a state-level penalty for residents who lack coverage.

The Individual Mandate in 2021

Starting in tax year 2019—no matter your income—you are exempt from the shared responsibility payment, also known as the health insurance penalty. In tax year 2021, the Internal Revenue Service (IRS) will not fine you for not having health insurance.

Low-Income Taxpayers and Tax Year 2018

Taxpayers generally have up to three years after the initial filing to amend tax returns from previous years. That means, during 2021, some taxpayers may amend their returns for tax years 2017 and 2018. Remember, tax returns are typically filed in the calendar year after the tax year in question. For example, in 2021, you will file 2020 tax returns.

If you file or amend a tax return this year for 2017 or 2018, the IRS still requires you to either make a shared contribution payment, report coverage, or qualify for an exemption.

You may qualify for an exemption if your household income or annual gross income (AGI) is beneath the minimum threshold for filing a return. The minimum threshold in 2018 ranged from $12,000 (for single filers under the age of 65) to $26,600 (for those married filing jointly and over the age of 65). If you are a single adult under the age of 65, for example, and you earned more than $12,000 in the 2018 tax year, then you are responsible for the shared responsibility payment (if you didn't have qualifying health insurance coverage).

The IRS has a helpful tool to determine whether you qualify for an exemption or must make a shared responsibility payment.

If your income was below the threshold for the tax year in question, you can indicate your exemption on Form 1040 or Form 1040-EZ. You'll also indicate your exemption on Form 8965. Attach the forms and send them to the IRS along with the rest of your tax return.

If you had qualifying health insurance coverage—so you don't need to pay a fine or claim an exemption—then you will indicate that on your Form 1040 or Form 1040-EZ.

The IRS might not know just by looking at your tax return whether you're required to make the shared responsibility payment. Protect yourself by telling the IRS exactly what's going on by taking one of these two steps.  

Other Exemptions for Hardships

The ACA offers other exemptions for low-income taxpayers, as well. So, if you earn just a little over the tax filing threshold, all is not necessarily lost.

The IRS Instructions for Form 8965 provides a full list of possible exemptions available to all taxpayers. For example, members of certain Indian tribes and healthcare-sharing ministries are exempt, as are taxpayers who were incarcerated during the tax year.

Some exemptions apply specifically to taxpayers who simply could not afford coverage for one reason or another. Code G is for "general hardships," and it includes situations such as homelessness, bankruptcy, or eviction. You can also use Code G if your state did not expand Medicare coverage and your income for the year was below 138% of the federal poverty line based on the size of your family.

Code A can be used if the employer-sponsored or Marketplace coverage is unaffordable, defined as more than 8.05% of your household income.