Affordable Care Act
Please note - If you live abroad you are exempt from the Affordable Care Act.
The Affordable Care Act ("ACA") also knows as "Obamacare" is the most comprehensive set of federal tax law changes since 1986.
Basically, the law mandates that all American must either have health coverage or pay a penalty for not having health insurance unless you qualify for an exemption.
When you file your tax return, you'll be asked to check a box saying whether or not you had insurance. This year only, the Internal Revenue Service really won't have a way of checking if you're lying about having coverage, but remember your legal obligation to be truthful on your return. What are the requirements to report information to the IRS by the Health Coverage Providers - click here.
For 2019 - the ACA penalty has been abolished.
If you live overseas you are exempt from the penalty.
How big is the fine?
You may have heard that the penalty for not having health insurance is only $95 for the year, but that’s only for certain people. Here’s the full formula. For the 2014 tax year, you’ll pay the greater of these two numbers: A. 1 percent of your household income above $10,000, up to a maximum of $2,448 per person; or B. $95 per adult and $47.50 per child, up to a family maximum of $285.
In 2015 the penalty gets bigger. It’s going to be 2 percent of your household income or $325 per adult and $162.50 per child up to a family maximum of $975.
To spare you the trouble of doing the math, the Tax Policy Center has a calculator that will figure your penalty for you. For instance, a family of four with an income of $60,000 would pay a penalty of $285 in 2014 and $650 in 2015.
What if I had insurance for part of the year?
If you were uninsured for less than 3 months, you won’t have to pay anything. But if you were uninsured for longer, your fine will be 1/12th of the annual total for every month you didn’t have coverage.
How will the government collect it?
It will be part of the income tax that you owe the government. If you are due a refund, the IRS will deduct your penalty from that.
What if I refuse to pay?
The IRS will keep track of what you owe, and the first chance it gets it will withhold it from a future refund. But unlike with other tax obligations, it can’t come after you with a lien or criminal prosecution.
What are the exemptions?
There's an extensive list, which you can find here. For instance, you don’t have to pay the fine if:
- You earned too little money to be required to file taxes. Right now, the “tax filing threshold” is about $10,000.
If you don’t file, the IRS won’t collect your insurance information. (This is the only exemption you can get automatically.)
- The cheapest coverage you can find, even with tax credit premium subsidies, costs more than 8 percent of your household income.
- You are in jail.
- You are living abroad.
- You are not a legal resident of the United States.
- You have some kind of hardship. The government has come up with a long list of these, including having crushing medical debt, being homeless, or being the victim of a natural disaster or domestic violence. The biggest hardship category is the people who fall into the “coverage gap” because they make too little to qualify for health insurance premium subsidies but live in a state that’s not expanding Medicaid to cover all low-income residents.
You can claim some of these exemptions right on your tax return, but must obtain others from your state Health Insurance Marketplace. Here's a chart from the IRS giving details. You can apply for any of these exemptions right now, and probably should so you’ll have them granted by the time you have to file your income taxes. Here’s more information on how to do that.