A Refresher on the ACA’s Tax Penalty on Individuals Without Health Insurance
The Affordable Care Act (ACA) appears to be sticking around, at least for the time being since repeal and replacement efforts have collapsed. With that in mind, it’s a good idea to make sure you understand the “individual mandate”, which is the tax penalty imposed on individuals who fail to have “minimum essential” health insurance coverage for any month of the year.
Before we review how the penalty is calculated, let’s take a quick look at exceptions to the penalty. Taxpayers may be exempt if they fit into one of these categories for 2017:
- Their household income is below the federal income tax return filing threshold.
- They lack access to affordable minimum essential coverage.
- They suffered a hardship in obtaining coverage.
- They have only a short-term coverage gap.
- They qualify for an exception on religious grounds or have coverage through a health care sharing ministry.
- They’re not a U.S. citizen or national.
- They’re incarcerated.
- They’re a member of a Native American tribe.
Calculating the tax
So how much can the penalty cost? That’s a tricky question. If you owe the penalty, the tentative amount equals the greater of the following two prongs:
- The applicable percentage of your household income above the applicable federal income tax return filing threshold, or
- The applicable dollar amount times the number of uninsured individuals in your household, limited to 300% of the applicable dollar amount.
In terms of the percentage-of-income prong of the penalty, the applicable percentage of income is 2.5% for 2017.
In terms of the dollar-amount prong of the penalty, the applicable dollar amount for each uninsured household member is $695 for 2017. For a household member who’s under age 18, the applicable dollar amounts are cut by 50%, to $347.50. The maximum penalty under this prong for 2017 is $2,085 (300% of $695).
The final penalty amount per person can’t exceed the national average cost of “bronze coverage” (the cheapest category of ACA-compliant coverage) for your household. The important thing to know is that a high-income person or household could owe more than 300% of the applicable dollar amount but not more than the cost of bronze coverage.
If you have minimum essential coverage for only part of the year, the final penalty is calculated on a monthly basis using prorated annual figures.
While it’s uncertain to what extent the penalty will be enforced in the future, compliance with ACA laws are highly recommended. If you have concerns about this or other ACA-imposed taxes, JLK Rosenberger can help. For more information, call us at (818) 334-8623 or click here to contact us.