What To Do If You Owe a Health Insurance Tax Penalty

Sarah Sullivan
April 30th, 2019 March 9th, 2018 |
Read time: 9 minutes

Tax season is upon us and, as it has every year since 2014, that means there’s an ACA-related fun health insurance twist to your individual tax preparation.

Here are a few facts to keep in mind this year when you file:

  • For the first time, you will be required to prove that you had health insurance coverage during the year. That means proof of insurance in the form of insurance cards, forms 1095-A, 1095-B or 1095-C, W-2 or payroll statements indicating health insurance deductions.1
  • The IRS has indicated that they’ll refuse 2017 electronic tax filings that don’t either claim coverage, an exemption, or include the penalty payment.2
  • You have probably heard something about the recent tax reform plan repealing the Obamacare individual mandate. That doesn’t take effect until 2019. The individual mandate is still in effect for 2017 and 2018.3

Average Obamacare penalty amounts paid have increased exponentially each year4:

  • 2014 average penalty: $210
  • 2015 average penalty: $470
  • 2016 average penalty (projected): $667
  • 2017 data is not yet available

So where do you start? Are you facing a potential ACA tax penalty for not obtaining minimum essential coverage last year?

Find Out if You Qualify for a Health Insurance Exemption

If you did not enroll in a MEC plan or had coverage that did not qualify as minimum essential coverage, before you pay the penalty make sure you don’t qualify for an exemption.

Remember, minimum essential coverage can be obtained a number of ways, including through your employer as well as government programs like Medicaid, Medicare, and CHIP.

Learn more about what qualifies as MEC coverage.

Exemptions can pertain to:

  • Income—For example, you don’t file a tax return because your annual earnings are below the level requiring you to file
  • Health insurance—For instance, you were uninsured for no more than two consecutive months of the year
  • A group to which you belong—Such as a federally-recognized Native American tribe
  • Hardship—Including homelessness, domestic violence or bankruptcy filing

Learn more about Obamacare exemptions.

Tools to Help You Identify ACA Exemptions

Healthcare.gov has a tool that you can use to find exemptions you may qualify for and provides you with the necessary forms and next steps to apply for them.

Alternatively, you can also use the IRS’s “Interactive Tax Assistant” tool to determine if you’re eligible for an exemption or required to make a shared responsibility payment.

Claiming ACA Individual Mandate Exemptions – The Basics

Below are key points to keep in mind about exemptions:

  • Some exemptions, such as general hardship, must be applied for and approved prior to claiming them on your taxes while others, such as the short coverage gap exemption, can simply be claimed on your Form 1040.5
  • You may apply for exemptions at healthcare.gov.
  • There are about 20 different exemptions, including hardship exemptions covering situations such as experiencing domestic violence, homelessness or the death of a family member.6
  • Some exemptions require documentation, some do not. You can find details about how to qualify and apply for each of the exemptions by visiting healthcare.gov.
  • Many exemptions require an Exemption Certificate Number (ECN), which is issued by the Marketplace. (If you don’t have yours in time, just report “PENDING” instead of the exemption code.)7
  • Some exemptions last only three months, while others last a calendar year.
  • Some exemptions will qualify you for a catastrophic health plan and/or a special enrollment period; some will just help you avoid the fee.
  • More than one exemption may apply to you. If that’s the case, each exemption may need to be listed separately. The exemptions are claimed on your federal tax return by filing Form 8965.8 It’s recommended that you have documentation of what qualifies you for the exemption(s) that you apply for.

Paying the Individual Mandate Penalty

If you don’t qualify for an exemption, you can quickly estimate how much you’ll likely have to pay by using the Healthedeals ACA Calculator.

The tax penalty amount is calculated based on a percentage of your household income or a per-person rate up to a capped amount, whichever calculation results in the higher amount.

If it turns out you’re facing a penalty, check out this article to learn how to pay the ACA individual mandate penalty when you file your taxes.

Next Steps

To learn more about enforcement of the individual mandate for Tax Year 2018 and beyond, read our latest update.

If you are currently uninsured and need benefits to help pay for unexpected healthcare until the next open enrollment period, consider alternatives to major medical. As long as you qualify, you can enroll in these plans anytime throughout the year.

Remember, minimum essential coverage is still the law unless you’re exempt. Health insurance open enrollment takes place annually every November.

Plan ahead now to obtain the coverage you need when the time comes, either through your state exchange or the federal exchange if you qualify for a subsidy, or away from the exchanges, where you may be able to find a better deal.

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Originally Published On March 9th, 2018
Independence American Insurance Company and/or Madison National Life Insurance Company, Inc. may underwrite the products referenced on this website. Legal Disclaimers.


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