ObamaCare Tax Penalty Explained

Under the Affordable Care Act, all US citizens, permanent residents (green card holders), and those with “resident alien” status are required to have health insurance with minimum essential coverage. Those who do not have health insurance with minimum essential coverage must pay the ObamaCare tax penalty fee known as the “individual shared responsibility payment” unless they qualify for an exemption.

The fee is either a percentage of your household yearly income or a flat fee, depending on the calculation and whichever amount is higher. If you have health insurance for part of the year, then only half of the fee would apply. If you have a gap in insurance coverage for just a month or two, you may be eligible for the “short gap” exemption.

The tax penalty flat fee increases each year. Based on the published information at healthcare.gov, the yearly fee adjustments are represented below:

  • 2014: $95 or 1% of household income, whichever is greater.
  • 2015: $325 or 2% of household income, whichever is greater.
  • 2016 & 2017: $695 or 2.5% of household income, whichever is greater.
  • After 2017: Same as 2016 & 2017, but adjusted for inflation.

Source: Obamacarefacts.com

This means that a single person with a taxable income of $50,000 would have to pay a tax penalty of $1,250 (2.5% of $50,000) on their 2016 or 2017 income tax return.

If you are a US citizen, permanent resident, or other US immigrant, you may be subject to the ACA tax penalty fee unless you do one of the following:

  • Get Healthcare. Buy health insurance with minimum essential coverage by purchasing health insurance through the marketplace during open enrollment or getting employer-sponsored health insurance. The ObamaCare open enrollment period for 2017is November 1, 2016 to December 15, 2016.
  • Qualify for a tax penalty exemption. In order to qualify for a fee exemption, you must apply for one of about 20 different exemptions and be approved for that exemption. People who qualify for such exemptions include members of certain religious sects or federally recognized Indian tribes, citizens or residents living abroad for 330 days out of a given calendar year, and those uninsured for up to three consecutive months, among many others including qualifying life events and your financial status.

Missed the ObamaCare Deadline?

If you missed the open enrollment period for ObamaCare, you can go up to 2 months without health insurance before you are subject to the tax penalty fee. Thereafter, you can insure yourself with short term health insurance for medical coverage but are still subject to the fee. For more information, read about what to do if you missed the ObamaCare deadline.

Some people are concerned about the further penalties that may apply if they do not pay the ACA fee like – Will I be penalized with jail time for not paying the ObamaCare penalty? or What if I don’t pay the penalty? etc.. According to HealthCare.gov, you may not be penalized with jail time or criminal penalties but the IRS will withhold the fee you owe from your tax refund amount if you have not paid the tax penalty fee.

Health insurance with minimum essential coverage is mandatory for all US citizens, permanent residents, and green card holders who do not qualify for an exemption. If you do not yet have healthcare, be sure to purchase minimum essential coverage during the healthcare enrollment period to avoid becoming subject to the ObamaCare tax penalty fee.

See HealthCare.gov for more information or send your queries to support@visitorscoverage.com and we’ll respond as soon as possible. For any kind of insurance needs, please feel free to call us at 1.866.384.9104.

Additional Reading

Disclaimer: Information presented here is high level and for your convenience only, it may not be accurate and may not cover all aspects of the ACA or Obama care act. Please consult your CPA, tax expert or tax attorney for specific tax advice and inquiries. Visit IRS Website for US tax information.

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