Nervous about that “health care penalty’ on your 2018 taxes? The TCJA (Tax Cuts and Jobs Act) enacted in December 2017 by the Congress removes the individual health insurance penalty under the Affordable Care Act (ACA), otherwise known as Obamacare. However, the new provision will start to take effect from the 2019 tax year. Taxpayers, who are not otherwise exempt from the health insurance penalty 2018, are required to have minimum insurance for themselves and their dependents to avoid a penalty.
Before the removal of the ACA healthcare penalty, taxpayers who didn’t possess minimum health insurance coverage or qualify for an exemption were fined a penalty on their tax returns. According to IRS records, more than four million taxpayers paid the healthcare insurance penalty for the 2016 tax year, and over 5.6 million people paid the penalty for the 2015 tax year.
What’s the Penalty Amount?
The amount of the healthcare penalty can be either a flat amount or a percentage of your overall household income above the yearly income tax filing threshold amount. You need to calculate the penalty using the two applicable methods and then pay the greater amount.
The healthcare penalty for 2018 taxes is a flat amount of $695 for every adult and $347.50 for every child below the age of 18 years up to a maximum of $2,085 for every family. The percentage penalty is 2.5% of the taxpayer’s household income.
Calculation of the Healthcare Penalty
The healthcare penalty is usually calculated with the help of a worksheet and input on Schedule 4 of Form 1040. Individuals who qualify to claim a penalty exemption file the form 8965 along with their tax returns. The IRS gets details about health insurance coverage from medical insurance providers and employers. These groups normally send 3 forms; 1095-A. 1095-B and 1095-C to the IRS and the taxpayers. The forms indicate who was insured and also inform the IRS whether the coverage lasted for the whole year or part of the 12 months.
It is important to note that although the individual penalty is removed starting with the 2019 tax year returns, taxpayers will continue to get forms 1095-A, 1095-B and 1095-C with details about their health insurance.
Exemptions from the Penalty
There are some exemptions from the healthcare penalty, the most common being:
- The most affordable insurance coverage costs for you are more than 8.13 percent of your total household income.
- You did not have healthcare insurance for less than 3 consecutive months during the tax year.
- You have been exempted from filing tax returns as a result of having an income that is too low.
- You are a Native American or you qualify for medical care via an Indian health care provider.
- Your religious faith objects to buying insurance
- You are in prison
- You are a member of a healthcare sharing ministry
- You have lived outside the US for more than 12 months
- You are eligible for a hardship exemption because of bankruptcy, eviction, homelessness, or a similar situation.
The IRS enforces the healthcare penalty. The amount is evaluated as a federal tax liability that you are supposed to pay as you file your tax returns. The legal powers of the IRS for collecting the penalty are limited. They cannot file a lien on your personal property or charge an interest on the amount you owe.