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 individual mandate health insurance penalty imposed by the Affordable Care Act (ACA) is in its waning days on the federal level. It doesn't matter if you're low income, high income, or if you fall somewhere in between—the 2017 Tax Cuts and Jobs Act (TCJA), signed into law on December 2017, dealt the penalty a death blow. The ACA itself is still alive and well, but the TCJA reset the penalty to zero and effectively eliminated it as of tax year 2019. 

This penalty-free federal provision of the TCJA became effective at the end of 2018. Tax filers still had to deal with it in tax years 2017 and 2018, but you might dodge it if your income is below certain thresholds. However, if you live in certain states you may still be assessed a state-level penalty if you are without coverage.

The Individual Mandate in 2020

As of tax year 2019, no matter your income, you are exempt from the "shared responsibility payment," also known as the health insurance penalty. The IRS won't fine you for not having health insurance.

In fact, for tax year 2019, there won't even be a box on form 1040 to indicate whether you have coverage or are exempt. You don't need to make payment of your "shared responsibility payment," or fill out any additional forms. 

Low-Income Taxpayers and Tax Year 2018

If you file a tax return now 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 to $26,600, depending on many factors including age and marital status.

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

After determine if your income was below the threshold for the tax year in question, you can check the “Full-year health care coverage or exempt” box on Form 1040 or Form 1040 E-Z. Then indicate on Form 8965 that you qualify for an exemption from the shared responsibility payment. Attach the form and send it to the Internal Revenue Service along with your tax return. 

If you had health insurance for all 12 months of the year, you can check the appropriate line of your tax return to indicate this. This signals to the IRS that the shared responsibility payment wouldn't apply even if you weren't exempt because you did indeed have health insurance. 

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. Some come with a code letter that you can enter on Form 8965 in Part III if you can't check off box 7. 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 includes situations such as homelessness, bankruptcy, or eviction. 

For 2018 returns, you can also use Code G if your state did not expand Medicare coverage and your income for the year was below 138 percent 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.

If You Don't Qualify for an Exemption

The IRS can do little about it if you pay any tax debt you owe but you can't scrape together more money for past-year penalties. The law doesn't allow the IRS to impose levies or liens to collect unpaid shared responsibility payments, although unpaid interest will accrue and could reduce any future refunds or over-payments. 

Article Sources

  1. Library of Congress. "H.R.1 - An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018." Accessed Jan. 15, 2020.

  2. Healthcare.gov. "No Health Insurance? See If You'll Owe a Fee." Accessed Jan. 15, 2020.

  3. Internal Revenue Service. "Individual Shared Responsibility Provision." Accessed Jan. 15, 2020.

  4. Internal Revenue Service. "Individual Shared Responsibility Provision – Reporting and Calculating the Payment." Accessed Jan. 15, 2020.

  5. Internal Revenue Service. 2018 Instructions for Form 8965 Health Coverage Exemptions (and Instructions for Figuring Your Shared Responsibility Payment), p. 20. Accessed Jan. 14, 2020.

  6. Internal Revenue Service. "Reporting Health Coverage on IRS Tax Forms." Accessed Jan. 15, 2020.

  7. Internal Revenue Service. 2018 Instructions for Form 8965 Health Coverage Exemptions (and Instructions for Figuring Your Shared Responsibility Payment), p. 7. Accessed Jan. 15, 2020.

  8. Internal Revenue Service. "Individual Shared Responsibility Provision - Minimum Essential Coverage." Accessed Jan. 15, 2020.

  9. Internal Revenue Service. 2018 Instructions for Form 8965 Health Coverage Exemptions (and Instructions for Figuring Your Shared Responsibility Payment), p. 13. Accessed Jan. 14, 2020.

  10. Internal Revenue Service. 2018 Instructions for Form 8965 Health Coverage Exemptions (and Instructions for Figuring Your Shared Responsibility Payment), p. 14. Accessed Jan. 14, 2020.

  11. Internal Revenue Service. 2018 Instructions for Form 8965 Health Coverage Exemptions (and Instructions for Figuring Your Shared Responsibility Payment), p. 8. Accessed Jan. 14, 2020.

  12. Internal Revenue Service. "The IRS Collection Process: Publication 594," p. 2. Accessed Jan. 15, 2020.