Tax Topic 561

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Tax Topic 561

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Topic 561 – Individual Shared Responsibility Provision
The individual shared responsibility provision requires that, for each month during the year, you and all members of your family:

Have minimum essential coverage (MEC);
Qualify for an exemption; or
Make a shared responsibility payment when you file your 2016 federal income tax return in 2017.
You’ll report MEC, claim exemptions, or make any individual shared responsibility payment when you file your federal income tax return. You’re responsible for reporting these items for yourself and any individuals whom you may claim as dependents for federal tax purposes.

MEC
MEC includes many types of health benefits coverage, including:

Government-sponsored programs such as Medicare, most coverage under Medicaid, the Children’s Health Insurance Program, TRICARE, and most health coverage provided to veterans;
Most employer-sponsored coverage, including coverage under a self-insured group health plan;
Health insurance coverage in the individual market, including a health plan enrolled in through the Health Insurance Marketplace; and
Certain other types of coverage recognized as MEC for purposes of the individual shared responsibility provision.
Coverage for one day in a month under any program that’s MEC satisfies the requirement to have MEC for that month. Many people already have qualifying health insurance coverage and don’t need to do anything more than maintain that coverage in 2016 and report it on their tax returns filed in 2017. If you and all your dependents have full-year coverage, check the full-year coverage box on your tax return. Otherwise, see Form 8965 (PDF), Health Coverage Exemptions, and the Form 8965 Instructions, Health Coverage Exemptions (and instructions for figuring your shared responsibility payment).

Exemptions
There are several exemptions that may be available to you or a member of your family. See the Form 8965 Instructions for a complete list. Some exemptions from the individual shared responsibility provision include exemptions for:

Members of a recognized religious sect;
Members of a health care sharing ministry;
Incarcerated individuals;
Certain noncitizens;
Individuals who don’t have access to affordable MEC. In general, you’re exempt if the amount you must pay for MEC is more than 8.13 percent of your household income for 2016;
Individuals whose household income or gross income is less than the minimum threshold for filing a tax return;
Members of Federally-recognized Indian tribes, or individuals who are eligible for services through an Indian health care provider or the Indian Health Service;
Individuals who have a gap in coverage that’s less than 3 full calendar months;
Individuals who’ve experienced a hardship that prevents coverage under MEC. There are several specific circumstances that have been identified as a hardship for this purpose.
Some exemptions are exclusively granted by the Marketplace, some are claimed only on tax returns, and some may be obtained from the Marketplace or claimed on tax returns. Whether you must first apply for an exemption from the Marketplace or may wait to claim the exemption when you file your income tax return depends on the type of exemption for which you’re eligible.

The exemption for members of recognized religious sects and most hardship exemptions are available only by applying for an exemption certificate at the Health Insurance Marketplace. If granted, the Marketplace will issue you an Exemption Certificate Number (ECN) that you’ll report on Form 8965 (PDF) filed with your federal income tax return.
The exemptions for certain noncitizens, a lack of affordable MEC, having income below your income tax return filing threshold, and a short coverage gap can only be claimed on your tax return. Individuals whose gross income is below their income tax return filing threshold don’t have to file a return solely to claim an exemption. However, if such an individual files a tax return anyway (for example, to claim a refund), the individual may claim an exemption on Form 8965.
In general, all exemptions must be reported to the IRS on Form 8965. Use Form 8965 to report an exemption, the names, and taxpayer identification numbers of each individual in your family claiming the exemption, and the months during the year for which you’re claiming the exemption. Attach this form to your Form 1040 (PDF), Form 1040A (PDF), U.S. Individual Income Tax Return, or Form 1040EZ (PDF), Income Tax Return for Single and Joint Filers With No Dependents.

Making an Individual Shared Responsibility Payment
The amount of the individual shared responsibility payment is based on the number of months that you don’t have coverage or an exemption.

For 2016, the individual shared responsibility payment is the lesser of (1) the sum of monthly penalty amounts or (2) the sum of the monthly national average bronze plan premium for coverage appropriate for nonexempt family members without MEC. Each monthly penalty amount is 1/12 of the greater of the excess income amount or flat dollar amount:

2.5 percent of your household income that’s above your income tax return filing threshold; or
Your family’s flat dollar amount, which is the sum of the applicable dollar amount for every individual without MEC or exemption, and can’t exceed 300% of the applicable dollar amount. The applicable dollar amount for 2016 is $695 per adult and $347.50 per child under age 18 for each member of your family who isn’t covered by MEC or doesn’t qualify for an exemption. For 2016, the flat dollar amount is limited to a family maximum of $2085.
The maximum amount you pay can’t be more than the national average premium for a bronze level health plan that would cover all members of your family for whom a payment is owed and is available through the Marketplace in 2016. See Revenue Procedure 2016-43 for the 2016 national average premium for a bronze level health plan available through the Marketplace.

If you’re required to make an individual shared responsibility payment for tax year 2016, report the amount on line 61 of Form 1040, line 38 of Form 1040A, or line 11 of Form 1040EZ. For more information, see Am I Eligible for a Coverage Exemption or Required to Make an Individual Shared Responsibility Payment?

Additional Information
For more information about these and other tax provisions included in the Affordable Care Act, see our Affordable Care Act (ACA) Tax Provisions page. Additional information about exemptions is available on the Individual Shared Responsibility Provision page. This includes Publication 5156 (PDF), Facts about the Individual Shared Responsibility Payment, a chart, IRS You Tube video – Individual Shared Responsibilities – Overview, and Questions and Answers.

Reminder from the IRS: Taxpayers who need health coverage should visit HealthCare.gov to learn about health insurance options that are available for them and their family, how to purchase health insurance, and how they might qualify to get financial assistance with the cost of insurance.

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