How to Pay the ACA Individual Mandate Tax

It’s tax time, and that means ghosts of health care open enrollments past may be coming back to haunt you.

If you did not obtain minimum essential coverage and didn’t apply for or qualify for an exemption, you likely owe the individual shared responsibility payment (aka “Obamacare tax”) for 2018.

Remember, the elimination of the ACA tax penalty only applies starting tax year 2019.

Please note, the information here is not intended to be legal or tax advice. Please contact an attorney or tax professional to obtain specific advice regarding questions, issues or problems you may have.

Paying the Penalty – The Basics

Here’s what you need to know^1,2:

• Due date: Payment is due at the same time your taxes are filed. For tax year 2018 the deadline is Monday, April 15, 2019 for most of the country. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts, and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers in those states have until April 17, 2019 to file.
• Impact on refund: The individual shared responsibility payment may be added to your total tax liability. That means it could lower the refund amount you receive if you have paid in enough taxes through withholding, estimates, and refundable tax credits and don’t need to make additional payments specifically for the individual shared responsibility payment.
• Unpaid penalties: If you don’t pay the individual shared responsibility payment you’ll receive request payment notices from the IRS and interest will accrue on unpaid shared responsibility payments from the date the payment was due.
• Outstanding payments due: The IRS will withhold that amount from any future tax refunds. However, there are no liens, levies, or criminal penalties for failing to pay the fee, and the IRS cannot assess late payment penalties. The IRS has 10 years from the date you filed a return to collect any unpaid shared responsibility payments.
• Payments toward other taxes owed: These will first be applied to any outstanding shared responsibility payments due.

How to File Your Tax Return When You Owe a Penalty

If you’re using a tax accounting software, you simply need to answer the questions regarding your health insurance coverage and the penalty amount will be added to your total.

If you’re preparing your taxes using the IRS forms, you’ll use the Instructions for Form 8965, “Health Coverage Exemptions,” and report the result on the “Health Care: individual responsibility” line of your federal tax return.³

Remember, you only pay the penalty for months during which you or a family member did not have coverage or a qualifying exemption.⁴

What Happens if You Don’t Pay the Penalty You Owe?

Even though the IRS can’t pursue legal action against you, they can compel you to pay in other ways.

No payment: If you file your return and include your health coverage information but neglect to send payment, the IRS will automatically deduct the payment from any refunds you’re owed this year and in future years.⁵

No proof of coverage/exemption: If you attempt to file your return without including the required health coverage or exemption information the IRS will reject your electronically filed tax return.⁶

Paper returns that do not address health coverage requirements may be suspended and refunds delayed.⁷

What Are Your Options for Paying the ACA Penalty?

Here are your options for making your ACA shared responsibility tax payment:⁸

Pay in Full – The simplest option is to pay the penalty in full when you file your tax return either by using a check or credit card.

If you don’t have the cash on hand it may be more affordable to use a no-interest credit card and pay the balance down before the interest rate kicks in than to use the IRS’s monthly installment plan.

IRS Monthly Installment Plan – If you can’t pay the penalty in full, you or your tax preparer can complete Form 9465 and request a payment plan.

Note that these installment plans can be expensive, anywhere from $31 up to $225 to set up the plan.⁹ You will also be subject to interest fees and late payment penalties. All the information can be found at the Instructions for Form 9465.

If you make payments on a regular basis, your credit should remain unaffected.

Get a 6-Month Extension – File your return but request an extension on the payment due date using Form 4868. Make sure to return this form along with the rest of your tax return by the filing date.

IRS Withholding – And finally, as previously mentioned, if you don’t voluntarily pay the penalty your future refunds will be at risk. The IRS will withhold penalty balances from the current year tax refund and any future tax refunds you may be owed.

Plan Ahead for Next Year

Since open enrollment ended for most of the country in December of last year, you may have trouble enrolling in a minimum essential coverage plan unless you qualify for a special enrollment period, qualify for a program without a limited enrollment period such as Medicaid or CHIP, or start a job that includes qualifying health coverage.

Remember, there are many possible exemptions available. If you think you may qualify for one or more in the coming year, make sure you understand the application and documentation requirements now and plan ahead. It will make filing your taxes next year easier.

Finally, hold onto receipts and keep track of your medical expenses so that you can get the most out of your available deductions.

The materials available at this web site are for informational purposes only and not for the purpose of providing legal or tax advice. You should contact your attorney or tax professional to obtain advice with respect to any particular issue or problem.