ACA Penalty: Everything You Need to Know
The ACA penalty tax has been required ever since 2014, which is given when taxpayers do not have the required health care that the ACA demands.4 min read
The ACA penalty tax has been required ever since 2014, which is given when taxpayers do not have the required health care that the ACA (Affordable Care Act) demands. Each year, a box had to be checked on their tax form and for each month, indicating that they had the proper coverage for themselves and for dependents. The penalty was called the “shared responsibility payment.” Besides having the coverage, the only other way to avoid the penalty was to have an exemption.
The penalty was small for the first year, either $95 for each member of the family or 1 percent of the income. In 2016, it was greatly increased up to the larger of $695 per person, or 2.5 percent of the household income. If coverage was only held for some of the year, then the penalty was pro-rated. The price did have a cap that was equal to the cost of the low cost health plan.
The cap would only affect households with higher income. Individuals would need to make over $107,000 to have it apply, and bigger families would have to make several times that amount for it to apply to them. A tax penalty calculator is available on the Tax Policy Center’s website to determine how large a penalty you would need to pay based on income and the demographic characteristics.
The tax returns from 2015 indicated that as many as 80 percent of homes with no dependents had coverage for the entire year. About 13 million tax returns (nearly 9 percent) indicated that they had an exemption due to low income earnings, religious teachings and beliefs, or illegal status. As many as 6.5 million people, about 5 percent of returns (non-dependent), did pay a penalty tax with an average of $470, which was more than twice that paid in 2014.
Who Pays the ACA penalty?
The tax penalty is for those who are not covered for more than three complete and consecutive months. It does not count if you are only covered for one day in the month.
How Much Are The ACA Penalty Costs?
The amount of the tax penalty is determined by one of two methods. Households will pay the greater amount of a percentage of their total income (adjusted gross) for the household, or they will pay a flat rate. Your tax return will enable you to determine this amount.
The tax penalty will increase in order to keep up with inflation, and to motivate people to get health coverage. As of 2017 and afterwards, the penalty rate will stay at 2.5 percent. The flat fee will change to allow for inflation.
How to Avoid the ACA Penalty
The easiest method of avoiding the tax penalty is to buy health insurance. To make it easier for people to get covered, the ACA established the marketplace for health insurance at Healthcare.gov.
An open enrollment period provides a limited time to buy your next year’s coverage, but it is only open a few months. Once that period passes, the only time you can enroll is when there is life event that qualifies, such as getting married or divorced, or having a new baby. Other places health insurance can be obtained include your place of work, a private insurer, or if you can qualify – Medicaid.
Some people would rather pay the penalty than buy health insurance. To them, it is simply the easier way to go. Others may continue to be exempt for long periods of time.
Exemptions From the ACA penalty
There are several situations that enable a household to be exempt. These include:
• The lowest cost health insurance is more than 8 percent of the total income.
• Not having coverage for fewer than three months.
• Income is too low.
• You are Native American and receive health benefits from an Indian Health Services office.
• You are a prisoner.
• You have a religious exemption.
• You have been overseas for more than a year.
• You have a hardship exemption.
If you feel that you might qualify for an exemption, you can apply at the Healthcare.gov website.
The 2017 Affordable Care Act Penalty
Another fine that you might have to pay is given to those who can afford the health insurance coverage, but choose not to, is called the individual shared responsibility payment. It also goes by the following names: “Individual mandate,” the Obamacare fine,” or the “Obamacare penalty.”
Will The ACA Penalties And Exceptions Even Matter In 2017?
President Trump has sought to repeal the Obamacare program since he was placed in office. He wants to replace it with a better program, but it has not happened yet. It is uncertain whether or not the penalties will remain in place while a transition is being attempted.
Should I Skip Paying The ACA Penalty Tax?
At present, the individual mandate remains in place. Most people are still expected to have health insurance, and a fine may still be required if you do not have the required amount.
If you need help in understanding the ACA penalty or need to know whether it applies to you, you can post your legal need on the UpCounsel’s marketplace. UpCounsel only uses lawyers who have graduated in the top five percent of top law schools such as Harvard Law and Yale Law, and who also have an average of at least 14 years of legal experience. Many of them have worked with or on behalf of such companies as Google, Stripe, and Twilio.