The Tax Cuts and Jobs Act (HR 1, “TCJA”), enacted by Congress in December 2017, eliminated the individual health insurance mandate under the Affordable Care Act (popularly called Obamacare). However, this provision did not take effect until 2019. Individuals who were not otherwise exempt from the health insurance mandate were required to have health insurance in 2018, which means you had to obtain at least minimal coverage for yourself and your dependents for 2018.
For 2019 and later, no federal Affordable Care Act penalty will be imposed on individuals who fail to obtain health insurance. However, some states are enacting their own state-wide health care individual mandates that apply to state residents. Massachusetts has had it own health coverage mandate since 2006 and it remains in effect today. New Jersey passed a state-wide mandate that takes effect in 2019. Vermont passed a health coverage mandate that will take effect in 2020. Other states are considering implementing their own mandates—these likely won’t take effect until 2020 or later.
For 2018, if you failed to obtain coverage, you may have to pay a tax penalty (officially called a shared responsibility payment) along with your 2018 tax return. There are no criminal or other penalties for noncompliance. For more information on the repeal of the individual health mandate and how it affects the Affordable Care Act, see How Does the Tax Cuts and Jobs Act Affect Obamacare?
The amount of the penalty is either a flat dollar amount or a percentage of your household income above the annual income tax-filing threshold. You must calculate the penalty using both methods and then you pay whichever amount is greater. The amount is pro-rated based on the number of months during the year that you're uninsured. You will not be subject to the penalty if you were uninsured for less than three months during 2018. If you had coverage for only one day of a calendar month, it counts as coverage for that month. So if you were uninsured for two months in a row during 2018, and obtain coverage on the last day of the third consecutive month, you will not owe a penalty.
The penalty is either a flat amount assessed for each uninsured family member, or a percentage of your family income, whichever is greater. For 2018 the flat amount penalty is $695 per adult and $347.50 per child under 18 (up to a maximum of $2,085 per family). The percentage penalty is 2.5% of household income. However, the percentage penalty may never exceed the national average cost of a bronze-level health plan. The vast majority of taxpayers pay the flat amount. You need a large income to be subject to the percentage penalty: In 2017, for example, the percentage penalty applied only to uninsured single individuals with incomes of $140,960, and $673,600 for uninsured families.
You can find an online penalty calculator at https://taxpayeradvocate.irs.gov/estimator/isrp/
There are several exemptions from the penalty, the most common of which include the following:
- the most affordable coverage costs more than 8.13% of your household income
- you were uninsured for less than three consecutive months during the year
- you are exempt from filing a tax return because your income is too low
- you are native American or eligible for health services through an Indian health services provider
- your religion objects to the use of insurance
- you’re in prison
- you belong to a health care sharing ministry
- you have been outside the United States for more than one year
- you qualify for a hardship exemption due to homelessness, bankruptcy, eviction, or a similar circumstance.
The IRS enforces the penalty. The amount is assessed as a federal tax liability that you're supposed to pay when you file your tax 2018 return. The IRS has limited legal powers to collect the penalty. It can’t file a lien on your property or levy against your assets to collect the penalty, nor may it charge interest on any amount you owe. The only way the IRS may collect the penalty is by withholding it from your tax refund (if you are eligible for one). The IRS can wait for any year you’re entitled to a refund to collect the penalty.
Starting in 2019, there will no longer be any penalty if you decide not to obtain health insurance.