The Affordable Care Act, or Obamacare, became law in 2010. With this law came annual changes that are built into the law as written, as well as changes from Executive Orders, and through legal channels such as Congress and the Supreme Court. With each new change, our lives as US citizens are impacted.
The ACA includes mandates for businesses and individuals. The Affordable Care Act individual mandate penalty, or the 'individual shared-responsibility payment' as it is called within the law, is what we will be discussing here. This mandate requires US Citizens to purchase health insurance, and the Affordable Care Act individual mandate penalty penalizes you for not purchasing health insurance.
There are exceptions to the requirement to purchase health insurance. We will be discussing those exceptions as well as the requirements, penalties and changes for 2016.
The Individual Mandate
Individuals are required to have minimum essential health insurance coverage for any month of the year in which you are not exempt from purchasing it.
The Affordable Care Act Individual Mandate Penalty
You owe a penalty for any month that you, your spouse or your tax dependents do not have the minimum essential health insurance coverage. You will pay this penalty with the filing of your federal tax return.
Qualifying Exemptions from the Penalty
In some cases, you can qualify for exemptions from the purchase of the mandated health insurance coverage. If you qualify, you will be free from the penalty.
Amount of the Affordable Care Act Individual Mandate Penalty
In 2016, the Section 5000A penalty will be fully phased in. For tax year 2015, the ACA penalty was 2% of your total household adjusted gross income, or $325 per adult and $162.50 per child under age 18, whichever is higher, up to a maximum of $975. For tax year 2016, the penalty has risen to 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child under age 18, whichever is higher, up to a maximum of $2,085.
The maximum penalty amount is capped at the cost of the national average Bronze premium amount. This is the lowest-priced plan sold through the government's Marketplace websites.
For any months when you or a member of your 'shared responsibility family' did not have coverage, first determine if you meet any of the exemptions qualifying you for a pass from the penalty. If you did not meet any exemptions, then a monthly calculation of the penalty is required. These penalties were phased in for 2014 and 2015. In 2016 the penalty is fully phased in.
Qualifying for the Exemption for the Affordable Care Act Individual Mandate Penalty
If you or anyone in your family qualifies for a coverage exemption, you must file form 8965, Health Coverage Exemptions, with your tax return. The granting of the exemptions are done with the filing of your tax return, granted by the Marketplace or in an either/or situation between these two.
The following are qualifying exemptions:
- Coverage is considered unaffordable - This exemption is met if the cost of coverage exceeds a specified percentage of household income. The percentage is adjusted annually. It was 8.05% for 2015 and is 8.13% for 2016. This includes an employer-sponsored plan or the Bronze level health plan, as applicable.
- Short coverage gap - You went without coverage for less than three consecutive months during the year.
- Income below the return filing threshold - Your gross income is less than the amount required to file a return.
- Citizens living abroad and certain noncitizens -
- You are a US citizen living abroad for at least 330 full days during any consecutive 12 months.
- You are a bona fide resident of a foreign country for an uninterrupted period which includes an entire tax year.
- You are bona fide resident of a US territory.
- You are a resident alien who was a citizen of a foreign country with which the US has an income tax treaty; and you were there for an uninterrupted period that includes an entire tax year.
- You were not lawfully present in the US and not a US citizen or US national.
- You are a nonresident alien who elects to file a joint return with a US spouse.
- You are an individual who files Form 1040-NR or 1040-NR-EZ.
- Members of a health care sharing ministry - You are a member of a 501(c)(3) and have shared medical expenses in accordance with a particular set of religious beliefs.
- Members of Indian Tribes.
- Incarceration.
- Members of certain religious sects.
- General hardship - You experienced circumstances that prevented you from obtaining coverage, such as homelessness, eviction, foreclosure, domestic violence, death of a close family member or unpaid medical bills.
- Coverage considered unaffordable based on projected income.
- You were determined ineligible for Medicaid in a state that did not expand Medicaid coverage.
- Unable to renew existing coverage - You have a plan that is not renewable and you consider the other plans available unaffordable.
- AmeriCorps coverage - You are engaged in service in the AmeriCorps State.
Minimum Essential Coverage to avoid the Affordable Care Act Individual Mandate Penalty
As part of the ACA, which requires the purchase of health insurance in the face of penalties, it also requires you and each member of your family to have qualifying health care coverage. Qualifying health care coverage is also called minimum essential coverage. Here are some key points which define this minimal essential coverage:
1. Employer-sponsored coverage
2. Individual health coverage:
- Health insurance you purchase from an insurance company
- Health insurance your purchase through the Health Insurance Marketplace
- Health insurance provided through a student health plan
- Catastrophic plans
- Coverage under an expatriate health plan
3. Coverage under government-sponsored programs:
- Medicare Part A coverage
- Medicare Advantage plans
- Most Medicaid coverage
- Children's Health Insurance Program (CHIP) coverage
- Most types of TRICARE coverage
- Comprehensive health care programs offered by the VA
- Health coverage provided to Peace Corps volunteers
You are considered to have minimum essential coverage for the entire month as long as you are enrolled in and entitled to receive benefits under such qualifying plan for at least one day during that month.
If you and everyone on your tax return had health insurance coverage for every month of the year, then you should escape the Affordable Care Act mandate penalty. But the Affordable Care Act mandate penalty has serious consequences.