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How the Obamacare Tax Penalty Works

How the Obamacare Tax Penalty Works

Posted Mar 24, 2016 by Jenifer Dorsey

Under the Affordable Care Act, going without health insurance can mean owing a tax penalty known as the individual shared responsibility payment.

But how does the tax penalty actually work?

When you file your federal income taxes, your return will include a line labeled “Health care, individual responsibility,” and you will check the accompanying box if you had full-year coverage. You should also receive Form 1095-B, Health Coverage, from your coverage provider; this form shows what months you and your family members had minimum essential coverage throughout the year.

If you did not maintain coverage and were not eligible for an exemption, you will owe 1/12 of the annual payment for each month you (or your dependents) did not have coverage or were not exempt.[1]

You will pay the penalty when you file your tax return or in response to a letter from the IRS requesting payment.[2] Some or all of the amount due may be deducted from your refund, if you have one; otherwise, it will increase the amount you owe. The IRS advises that you should not directly pay any individual or tax preparer.

If you owe an individual shared responsibility payment and fail to pay it, the IRS can take the amount you owe from future refunds.[3] However, the law prohibits the IRS from using levies or liens to collect the penalty.[4]

How much is the penalty?

The shared responsibility payment increased in 2016. If you go without health insurance during this year, your annual tax penalty will be calculated based on the greater of these amounts[5]:

  • 2.5 percent of your income above the filing threshold, capped at the national average premium for a bronze plan available through the Marketplace
  • $695 per adult and $347.50 per child to a maximum family penalty of $2,085

You will only make a payment for the months you or your dependents went without coverage and did not qualify for an exemption. The amount due is reported on Form 1040 in the Other Taxes section and in the corresponding sections of Form 1040A and 1040EZ.[6]

You can estimate your Obamacare penalty using the healthedeal.com Health Insurance Cost and Subsidy Calculator. You can learn more about how the shared responsibility payment is calculated at IRS.gov.

Estimate your penalty

If you cannot pay all or part of your Obamacare tax penalty, you may be able to work out a payment plan. Contact a tax professional or the IRS to discuss any concerns you may have.

 


Legal Disclaimers

[1] Internal Revenue Service. “The Individual Shared Responsibility Payment – An Overview.” IRS Health Care Tax Tip 2014-4, March 20, 2014. IRS.gov. Page last reviewed or updated Dec. 1, 2015. https://www.irs.gov/Affordable-Care-Act/The-Individual-Shared-Responsibility-Payment-An-Overview

[2] Internal Revenue Service. “Six Tips About Individual Shared Responsibility Payments.” IRS Health Care Tax Tip 2016-12, January 28, 2016. IRS.gov. https://www.irs.gov/Affordable-Care-Act/Six-Tips-about-Individual-Shared-Responsibility-Payments

[3] HealthCare.gov. “If You Don’t Have Health Insurance: How Much You’ll Pay.” https://www.healthcare.gov/fees/fee-for-not-being-covered/

[4] Internal Revenue Service. "Questions and Answers on the Individual Shared Responsibility Payment.” Last reviewed or updated Feb. 25, 2016. https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision

[5] Internal Revenue Service. “Individual Shared Responsibility Provision – Reporting and Calculating the Payment.” IRS.gov. Last reviewed or updated Jan. 13, 2016. https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Calculating-the-Payment

[6] Internal Revenue Service. “Six Tips About Individual Shared Responsibility Payments.” IRS Health Care Tax Tip 2016-12, January 28, 2016. IRS.gov. https://www.irs.gov/Affordable-Care-Act/Six-Tips-about-Individual-Shared-Responsibility-Payments