When President Obama signed the Affordable Care Act (ACA) into law in 2010, what quickly became known as Obamacare made quite an impact. Healthcare became more accessible thanks to greater access to affordable health insurance, and more people became insured.
But Obamacare also brought in other dramatic changes. Health insurance became mandatory for all US citizens, and they faced tax penalties for Obamacare mandate non-compliance.
Are there still tax penalties if you don’t have health insurance in the United States? If so, what will these penalties cost you, and can they be avoided? We examine the answers to these important questions in this guide to Obamacare tax penalties.
What Are Obamacare Tax Penalties?
When the ACA/Obamacare was enacted, health insurance became easier to access. However, it also became mandatory. By making health insurance mandatory, the government aimed to ensure that as many people as possible had access to essential healthcare services.
If you did not comply with the requirement for health insurance coverage, you’d pay a tax penalty when submitting your tax return.
You would generally be liable for Obamacare tax penalties if you did not have minimum essential coverage for yourself and your dependents for one or more months during the tax year and did not qualify for an exemption.
If you were enrolled in ACA-approved health insurance through your employer, you would be considered compliant with the individual mandate. This means you would not be subject to the tax penalty.
Similarly, if your employer undertook to provide you with coverage but neglected to do so, they would be liable for the tax penalty.
Federal Mandate Penalty Repeal
Although certain people were exempt from this mandate and penalty, it was highly unpopular with those who had to pay it. The mandatory penalty was repealed at the federal level through the Tax Cuts and Jobs Act, which was signed into law by President Donald Trump in December 2017.
This meant that in 2019, individuals were no longer required to pay a penalty on their federal income tax return for not having health insurance coverage.
However, the mandate was only repealed at the federal level. The various US states could decide whether to institute an individual mandate penalty, and some have done so. Several other states are considering doing the same in the future.
State Individual Mandate Penalties
State health coverage mandates can vary widely regarding their requirements and associated penalties. These mandates typically require individuals to have a certain level of health insurance coverage or demonstrate proof of coverage.
The states with individual mandates for health insurance are:
- New Jersey
- Rhode Island
- Vermont has an individual mandate. While residents must report whether or not they have ACA-compliant insurance, they are not penalized for not having coverage.
- The District of Columbia (DC) also has an individual mandate for health insurance.
There are penalties in all these areas, except Vermont, for residents who don’t have health insurance that meets ACA requirements unless they have an exemption.
States That Are Considering An Individual Mandate In The Future
The following states are considering their mandates for health insurance, with similar penalties for residents who don’t comply and are not eligible for exemption.
More US states may also consider taking this route in the future.
The penalties for not meeting the requirements of any future health insurance mandates will probably be similar to the states that already have the mandate. That aside, there could be slight differences in amounts payable and the criteria for establishing those amounts.
Is There A Tax Penalty For Being Uninsured In 2023?
In 2023, although there is no federal mandate for health insurance, there are individual mandates in five states and one district. Failure to obtain ACA-compliant health insurance in these areas could make you eligible for a tax penalty.
ACA-compliant health insurance includes:
- Medicare – provides health coverage for people aged 65 and older and covers younger individuals with specific disabilities and certain medical conditions.
- Medicaid – offers healthcare to low-income individuals and families.
- CHIP (Children’s Health Insurance Program) – government-funded health insurance for children and, in some states, pregnant women.
- TRICARE – Department of Defense healthcare program for active-duty military personnel, military retirees, and eligible family members.
- COBRA – federal law in the United States that allows eligible employees and their dependents to continue their employer-sponsored group health insurance coverage for a limited period after certain qualifying events would otherwise result in losing that coverage.
- Or an ACA-approved federal or state exchange plan.
You can apply for an ACA-approved plan through the federal marketplace, Healthcare.gov, or through a private insurance organization like Enhance Health.
At Enhance Health, we understand that many people are uninsured because they think they can’t afford a health plan. This exposes many Americans to penalties that could have been avoided, increasing their financial burden in poor health or medical emergencies.
Different health plans are available, and many are affordable. Obamacare subsidies are also available to low-income households.
It means you can still get the essential health insurance coverage you need, even with a low or no income.
What Makes You Liable For An Obamacare Tax Penalty?
Obamacare tax penalties are the consequences you’ll face if you live in a state with an individual mandate and do not have ACA-compliant health insurance or an exception from health insurance.
What is important to note is that not all types of insurance on the market today are ACA-compliant.
These usually include short-term insurance plans like travel accident insurance, a fixed indemnity plan, or any other insurance with limited coverage. While these are useful and can supplement an ACA health insurance plan, they don’t constitute ACA compliance.
This means you could still receive a penalty if you have limited insurance that does not meet ACA requirements.
Exemptions From The Obamacare Tax Penalty
Exemptions were an important part of the Affordable Care Act. They allowed for flexibility for those who couldn’t afford or get health insurance. To receive exemptions, people had to meet specific criteria such as income below the federal poverty level or belonging to a religious group that refused insurance.
Most exemptions could be applied for through the Health Insurance Marketplace, either when applying for coverage or during the annual open enrollment period. Individuals would need to create an account on the Marketplace website and fill out an exemption application.
Some exemptions, such as the hardship exemption or exemptions for certain religious reasons, could be claimed when filing federal income tax returns.
In some cases, individuals could apply for exemptions directly to the IRS by submitting a written request and supporting documentation.
State laws regarding health insurance requirements can vary. Check with your state’s health insurance authority or a tax professional if you have questions about specific state-level requirements or exemptions.
What Makes You Eligible For An Exemption?
You will likely be exempt from the penalty if you don’t earn enough to file taxes. You’re also exempt if your state’s cheapest ACA health insurance coverage costs you more than 8.3% of your household net income.
You may qualify for an exemption due to hardships if one of the following causes you to be financially destitute:
- High debts due to family responsibilities
- Unemployment or bankruptcy
- Eviction or foreclosure on your home
- The damage caused to your home and family by a natural disaster
You will be exempt from the Obamacare individual mandate tax penalty if you are currently:
- Not lawfully present in the United States
- Incarcerated in a jail or prison or institutionalized at a state facility
Lastly, you will also be permanently exempt from the individual mandate and tax penalty if you are:
- A member of a religious group that objects on religious grounds to all forms of insurance
- Eligible to receive care from the federal Indian Health Service
- A member of one of the 566 federally recognized Native American and Alaska Native tribes
How Is The Penalty Calculated?
Federal Tax Penalties
Federal tax penalties for non-compliance with the Affordable Care Act were calculated in two ways, and you were liable for the higher of these two amounts:
- Percentage of Income: You could be charged a percentage of your household income above a certain threshold, typically around 2.5% of your household income that exceeded the tax filing threshold.
- Flat Dollar Amount: Alternatively, you could be subject to a flat dollar amount per uninsured person in your household, with a cap on the total penalty.
State Tax Penalties
Remember that just as health insurance costs differ by state, these penalty costs can vary from one state to the next. That’s because penalties are often based on the costs the offenders would have incurred if they had taken up insurance.
Also, certain states have slightly different approaches to calculating their specific Obamacare tax penalties. Therefore, the penalty amount may differ even further between these regions. Always check with your state insurance exchange and tax authorities to be sure of local rulings on this matter.
This is how the tax penalty for Obamacare non-compliance is calculated in each state with an individual mandate.
In California, residents must have ACA-compliant health insurance coverage or get an exemption. Failure to do so means they will have to pay a tax penalty. The current penalty for the year is a minimum of $850 per adult in your household and $425 per dependent child under 18.
Depending on your income and other household factors, the penalty could be much higher, too. This penalty will be imposed by the California Franchise Tax Board when you file your tax return.
In Massachusetts, residents must have ACA-compliant health insurance coverage or be exempted from this requirement. Failure to do so means they will incur a tax penalty based on 50% of the cost of the cheapest insurance plan in the state.
Your tax penalty will be calculated on a variety of factors, though, including your income, age, and the number of household occupants you’re responsible for. This penalty can be as much as $1,908 for individuals without insurance.
In New Jersey, residents must have ACA-compliant health insurance coverage. If they don’t do so and don’t qualify for an exemption from doing so, they will have to pay a tax penalty based on their income and family size.
The maximum penalty is the average annual premium for the cheapest ACA insurance plan tier (Bronze). This annual premium may differ from other states. Although each state’s health insurance exchange has the same four metal tiers, different insurers, plans, and prices may apply.
In Rhode Island, residents must either have ACA-compliant health insurance coverage or get an exemption from this requirement.
If not, they’ll have to pay a penalty called a Shared Responsibility Payment when filing their Income Tax returns. Residents not required to file yearly income tax returns are automatically exempt and don’t pay an Obamacare tax penalty.
District Of Columbia
The District of Columbia residents must have ACA-compliant health insurance coverage or qualify for an exemption. If they choose not to get insurance and are not exempt from doing so, they will have to pay a tax penalty.
This penalty will amount to the year’s total premiums for the cheapest health insurance plan available in D.C. Alternatively, the tax penalty owed may amount to 2.5% of their total household’s net income above the federal tax filing threshold.
Penalty Payment Options
What are the options for paying an Obamacare tax penalty? The penalty is a tax penalty and, therefore, comes into effect when you file your taxes. The exact procedure may differ depending on your specific tax obligations and the state you reside in (see above).
A distinction must be made between complete failure to obtain health insurance meeting ACA requirements and a short coverage gap. There may be valid reasons why you have a short gap in your coverage for the year. In such a case, you would not be liable for the penalty.
Three months or less constitutes a short gap, and you must show justifiable reasons for this gap. You could be penalized if there are two such gaps during the year. But to be sure of your liability, check if you are exempt from these penalties (see exemption eligibility section above).
Impact Of The Penalty On Tax Returns
The penalty for not having health insurance in a state with an individual mandate will either be deducted from a tax refund due to you from the IRS or added to your tax bill when you pay your taxes.
Of course, if you have an exemption or don’t have to file taxes, the tax penalty does not apply. This is because low-income earners who earn below the standard tax threshold are eligible for exemption from the Obamacare tax penalty.
Appealing Individual State Penalties
If you face a penalty for not having health insurance coverage in your state, you can appeal or dispute it. Each state has its procedures for appeals, but here are some general steps you can take:
- Check state guidelines: Look up the official website of your state’s health insurance marketplace or department of insurance and find information on the individual mandate and appeals process. You should be able to find details on how to appeal a penalty and any necessary forms or documents.
- Collect documents: Get together all relevant documentation related to your case, such as proof of insurance coverage, exemption eligibility, or other supporting documents that explain why you shouldn’t be penalized.
- Contact the state authority: Contact the relevant state authority. This could be the state’s health insurance marketplace, Department of Insurance, or another agency.
- Submit appeal: Follow the instructions provided by the state authority for submitting your appeal. You’ll likely need to complete a formal appeals form and include your supporting documentation. Clearly and concisely explain why you think the penalty should be waived or reduced.
- Wait for a response: The state authority will review your case and may request additional information or documentation. Be patient during this process as it can take time.
- Get a decision: The state authority will notify you of their decision regarding your appeal. If they grant your appeal, they may waive or reduce the penalty. If your appeal is denied, they will explain their decision.
Remember that the process and requirements for appealing state-specific health insurance penalties can differ from state to state. Follow the guidelines from your state’s official resources and seek legal advice if necessary.
Despite the repeal of the federal mandate for health insurance, several states have retained an individual mandate.
Tax penalties for Obamacare non-compliance are real, but there’s a simple way to avoid them. You’ll escape tax penalties by signing up for an ACA-compliant health insurance policy. You’ll also be protecting yourself and your family from the financial burden of medical bills without insurance.
Enhance Health is an organization of health insurance experts with years of experience in this industry. Our qualified consultants can help you find the best insurance plan for your pocket and peace of mind. Contact us today and get the coverage you need at an affordable price.