Important Facts to Know about the ACA Penalty

By Top Tax Staff | Dec 23, 2015 7:30:00 AM | Tax Tips and Help

    

obamacare penalties and taxes

The Affordable Care Act, also known as Obamacare, now requires all eligible U.S. citizens and residents to have health insurance. Failure to purchase health insurance from your employer, a private insurer, or through the Healthcare.gov exchange could result in the IRS monetarily penalizing you and your family.

To decide whether or not to buy health insurance or what kind of policy would best suit your purposes, it is important that you understand how the ACA penalty works. This information could spare you from being penalized when you file your income tax return.

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The ACA Penalty Explained

Many taxpayers want to know more about the ACA penalty before deciding whether or not to buy coverage. The penalty, also known as the individual shared responsibility payment, is owed for any month that you, your spouse, and your dependents do not have health insurance during the tax year.

To escape this fine, you must obtain the minimal allowable health insurance for you and your household. The minimal allowable coverage is defined as bronze level or an equivalent coverage. If you fail to obtain health insurance through work, a private insurer, or the exchange, you will be expected to pay a penalty when you file your tax return.

Penalty Amounts

The IRS began levying the ACA penalty against taxpayers during the 2014 income tax year. In 2014, the penalty for not having the minimal allowed coverage was set at one percent of your income or $95 per adult, whichever amount was greater. For families, the fine increased to $285 or one percent of the family's income.

The penalty for 2015 is slightly higher. If you fail to comply with the ACA, you will be penalized $325 per adult or two percent of your income. Families will incur fines of $975 or two percent of their income, whichever amount is greater.

Likewise, the fines increase for 2016. During that tax year, non-compliant adults will pay penalties of $695 each or 2.5 percent of their income. Families without proper coverage can expect to pay fines of $2085 per household or 2.5 percent of their incomes.

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ACA Penalty Exemptions

While some taxpayers can afford to pay the fines, many others would prefer to avoid them altogether. The IRS does allow for exemptions in certain circumstances. You may be exempt from paying the ACA penalty if:

  • You had bronze level or equivalent insurance for no fewer than three months out of the past 12.
  • The minimal allowable insurance would cost eight percent or more of your household income
  • You do not file an income tax return because your income is too low
  • You are a member of a recognized religious sect that objects to health insurance, including that available from Social Security, Medicare, and Medicaid.
  • You are incarcerated and not being held pending the disposition of charges.
  • You are in the U.S. illegally
  • You qualify for a hardship exemption due to being homeless, evicted in the past six months, or receiving a utility shut-off notice.

To request an exemption because of any of these circumstances, you must file a Form 8965 and submit it along with your return. This form allows the IRS to verify your information and forgive any ACA penalty that would otherwise be levied against you for non-compliance.

The Affordable Care Act now calls for you and other eligible members of your household to obtain health insurance. People who fail to comply with this law could be monetarily penalized when they file taxes. You can avoid being fined by learning how and when the penalty is applied and under what circumstances the IRS provides an exemption.

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