Obamacare, or the Affordable Care Act is now in the fourth year of providing health insurance. However,…
Yes, the ACA’s individual mandate penalty is still in effect, and will continue to be in effect in 2018. If you’re uninsured in 2018 and not eligible for an exemption, you’ll owe a penalty when you file your taxes in early 2019. But after that, the penalty will not be assessed.
Nearly eight years after it was enacted, most parts of the Affordable Care Act (aka Obamacare) are supported by the majority of Americans. This includes guaranteed-issue coverage regardless of pre-existing conditions, premium tax credits (subsidies) that make coverage more affordable, coverage for essential health benefits, the elimination of annual and lifetime benefit maximums, and the expansion of Medicaid.
But the individual shared responsibility penalty, aka the individual mandate, has remained an unpopular provision of the law. The mandate went into effect in 2014 and requires all Americans to maintain health insurance coverage unless they’re eligible for an exemption. There’s a penalty assessed by the IRS on people who don’t maintain coverage and who aren’t eligible for an exemption.
Yes, the penalty is still being assessed. That will change as of 2019, but people who are uninsured in 2018 will still owe a penalty when they file their taxes in early 2019.
President Trump campaigned on a promise to repeal the ACA and replace it with something else. Republicans in the House passed the American Health Care Act (AHCA) in 2017 but the legislation failed in the Senate, despite repeated attempts by GOP Senators to pass it.
Ultimately, Republican lawmakers passed the Tax Cuts and Jobs Act and President Trump signed it into law in December 2017. Although the tax bill leaves the rest of the ACA intact, it repeals the individual mandate penalty, as of 2019 (other provisions of the tax bill take effect in 2018, but the individual mandate repeal is delayed by a year).
On his first day in office, Trump issued an executive order aimed at “minimizing the economic burden” of the ACA. It essentially instructed federal agencies to be as lenient as possible in their enforcement of ACA taxes and penalties.
The penalty itself is specified in the text of the ACA, meaning that legislation (as opposed to just regulatory action by HHS or the IRS) was necessary in order to change or eliminate the penalty. The tax bill will repeal the penalty as of 2019, but until then, the IRS has to continue to enforce it.
However, under the terms of Trump’s executive order, the IRS can more lenient in terms of granting exemptions from the penalty. And they quietly made a change in February 2017, noting that they would continue to accept “silent returns” for 2016. But that changed in early 2018, when tax returns for 2017 were processed. Here’s what it all means:
So although there has been considerable confusion in terms of what’s going on with the individual mandate penalty under the Trump Administration, the filing process with regards to the individual mandate was the same for 2014-2016 returns, but became more strict for 2017 returns, as silent returns were no longer accepted. And although the penalty will ultimately be eliminated, there will still be a penalty, assessed in 2019, for people who are uninsured in 2018.
The ACA has plenty of carrots in the form of guaranteed-issue coverage and subsidies to make coverage and care more affordable, including premium subsidies, and cost-sharing subsidies. But there’s also a stick, in the form of a financial penalty for people who fail to maintain health insurance coverage throughout the year.
The penalty was implemented in 2014, and became progressively steeper through 2016. For 2017 and 2018, the penalty remained at the same level it was at in 2016. The penalty will be eliminated after the end of 2018, however, as a result of the Tax Cuts and Jobs Act (H.R.1) that was enacted in late 2017. But for 2018, the penalty still applies, just as it has since 2014.
The average penalty for people who were uninsured in 2015 was $470—up from $210 the year before. And according to preliminary data from the IRS, the average penalty was $667 for tax filers who owed the penalty for being uninsured in 2016 and who had filed their tax returns by early March, 2017.
When filing your taxes, it is important to note that there are numerous exemptions from the penalty. One of them is a provision that allows people to have one short gap in coverage during the year. In order to be exempt from the penalty in 2018, there are a number of things you should know:
Calculating the penalty can often seem complicated. To put it into the simplest terms, if you were uninsured for all 12 months of 2018 the penalty would be the greatest of:
Whatever the greatest of the three amounts is what you would pay.
According to the IRS, the penalty for 2017 will be the same for 2018. Your prorated monthly penalty is 1/12th of the annual penalty.
If you have a gap in coverage of three months or longer (and are not eligible for an exemption), you will have to pay 1/12th of the total penalty times the number of months you were uninsured.
For example, if you are single tax filer who was without insurance for six months and are subject to the annual $695 penalty, simply divide $695 by 12 months ($695 ÷ 12 = $57.92) to get your monthly penalty.
You would then multiply $57.92 by the six months you were without insurance ($57.92 x 6 = $347.52) to calculate your penalty for 2018.
The penalty is collected when you file your tax return. If you are owed a refund, the IRS will subtract the penalty from that refund.
Republican lawmakers introduced a variety of health care reform bills during the 2017 legislative session, aimed at repealing or changing various aspects of the ACA. However, the bill that ultimately passed, the Tax Cuts and Jobs Act, leaves most of the ACA intact. The only part that’s changed is the individual mandate penalty. And while it’s eventually eliminated by the tax bill, that won’t take effect until 2019. People who are uninsured in 2018 will still face a penalty when they file their 2018 taxes in early 2019.
The elimination of the individual mandate penalty in 2019 is contributing to higher premiums for 2019, because insurers expect that the people likely to drop their coverage after the penalty is eliminated will be healthy, whereas sick people will tend to keep their coverage. The penalty’s original purpose was to encourage healthy people to join the risk pool, as a balanced risk pool (with enough healthy people to offset the claims costs of the sick people) is necessary for any health insurance product to function.
According to the rate filings that have been publicized as of July 2018, a significant portion of the average proposed rate hikes across the country is due to the impending elimination of the individual mandate penalty, along with the Trump Administration’s efforts to expand access to short-term plans and association health plans (those plans are likely to appeal to healthier individuals, so their expansion has the same effect as the penalty repeal, in terms of reducing the number of healthy people who maintain ACA-compliant individual market coverage).
With the impending elimination of the federal individual mandate penalty, some states have considered implementing their own mandates and penalties:
Although the penalty’s days are numbered, the IRS has actually stepped up enforcement of the penalty in 2018. When filing your 2018 tax return (due April 15, 2019), be aware that the IRS is no longer accepting returns that don’t answer the question as to whether the tax filer had health insurance during the year.
If the question is not answered, your return will not be processed and you may be subject to late filing penalty fees.
Order would put an end to Navient’s years of abuse of students and taxpayers in…
Running a home-based business comes with many perks—flexibility, no daily commute, and the comfort of…
Tax season can be a time of anticipation and excitement, especially when you’re expecting a…
It's that time of year again – Tax Day 2024 is here! Today is the…
The Protecting Americans from Tax Hikes (PATH) Act was created in order to protect taxpayers…
The IRS’s “Where’s My Refund?” tool will be updated by February 17, 2024, for many…
This website uses cookies.