Initially, the ACA’s individual shared responsibility provisions required most individuals to obtain “minimum essential health insurance” coverage for themselves, and any dependents, or pay a penalty. Through the tax year 2018, taxpayers were also required to report health care coverage and whether they qualify for an exemption from coverage, and make a “shared responsibility payment” for months without coverage, or without a coverage exemption.
The Tax Cuts and Jobs Act (“TCJA”) reduced the shared responsibility payment penalty to zero starting for the tax year 2019 and all subsequent years. Nevertheless, despite the lack of a penalty, taxpayers are still legally required by the ACA to have “minimum essential coverage” or qualify for a coverage exemption. However, under the TCJA, they need not pay a shared responsibility penalty or file Form 8965 (to claim an exemption) with their Form 1040 even if they don’t have minimum essential coverage or an exemption for part or all of 2019.
If taxpayers owe a shared responsibility payment for tax years before 2019, the IRS may still offset that liability from any tax refund that may be due to them.
Beginning in 2020 when you file your 2019 tax return, there will be no individual shared responsibility payment due if an individual fails to maintain minimum essential coverage.
There are two types of shared responsibility payments: the employer shared responsibility payment and the individual shared responsibility payment.
Employer shared responsibility
The employer shared responsibility payment is a tax penalty imposed on businesses with 50 or more full-time equivalent employees if the businesses don’t offer affordable health insurance benefits, or if the benefits offered do not provide minimum value. If any of the employees get subsidies (tax credits) to help them buy health insurance from a health insurance exchange, their employer gets a tax penalty, assessed by the IRS. Although the individual mandate penalty no longer applies at the federal level, nothing has changed about the employer mandate and its associated penalties. Large employers that don’t offer affordable, minimum value coverage to their employees are still subject to penalties.
Individual shared responsibility
The individual shared responsibility payment, created by the ACA’s individual mandate, was a tax penalty imposed on individual US citizens and legal residents who didn’t have health insurance between January 1, 2014, and December 31, 2018. The payment was assessed by the IRS when people filed their tax returns for tax years 2014 through 2018 (state-based shared responsibility payments are assessed by the state treasury department when residents file their state tax returns).
The ACA’s individual shared responsibility penalty was eliminated after the end of 2018, under the terms of the Tax Cuts and Jobs Act that was enacted in late 2017. But people who were uninsured in 2018 still owed the penalty when they file their tax returns in 2019, and a few states have implemented their own individual mandates and associated penalties for 2019 and future years.
There is no longer a penalty for being uninsured unless you live in New Jersey, Massachusetts, or the District of Columbia. As of 2020, Rhode Island and California also have individual mandates with penalties for non-compliance (and California has created new state-funded premium subsidies in addition to the ACA’s premium subsidies to make coverage more affordable and make it easier for people to comply with the mandate).
Massachusetts has had an individual mandate and penalty since 2006, but deferred the penalty in favor of the federal penalty from 2014 to 2018; New Jersey, DC, Rhode Island, and California have implemented new individual mandates and penalties due to the elimination of the federal penalty. Vermont has also implemented a mandate, effective in 2020, but has not created a penalty for non-compliance.