When the Tax Cuts and Jobs Act was signed into effect in 2017, one of the least talked about changes is the repeal of the Affordable Care Act’s penalty by zeroing out fines.
The individual shared responsibility provision also known as the “individual mandate” is the penalty that goes to people who do not have health insurance. The penalties didn’t amount to much in the first year, however they sharply increased year after the launch. For the 2017 tax year, the penalty was equal to a flat rate or a percentage rate, whichever is higher. The flat rate was $695 per adult, or $347.50 per child under 18, for a maximum eye popping sum of $2,085 per household. While the percentage rate was a 2.5 percent of your household income.
Even though the tax penalty is being phased out, the same penalties are in place for tax year 2018 as well. The fact is that all individuals must carry health coverage that meets the ACA requirements or pay the tax penalty! The Obamacare tax penalty doesn’t go away until 2019.
Individuals can avoid the agony the penalty would inflict, if they qualify for one of the Affordable Care Act’s exemptions. For example, a person can be exempt from the penalty if the individual isn’t required to file a tax return because their income is too low.
Other exemptions include:
A gap in insurance coverage for less than three months in 2018. Being a member of a healthcare sharing ministry or participating in government program, such as Medicare.
If you are a member of a federally recognized Native American tribe or if you are eligible for services through an Native American care provider. And finally, you can escape the penalty if you are claiming the religious conscience exemption or a hardship exemption.
If you don’t qualify for an exemption, the only way to avoid the shared responsibility payment for coverage year 2018 is to enroll in a health plan that qualifies as a minimum essential coverage.
Employer-sponsored health plans
Private health plans purchased from health insurance companies
Private health plans purchased from a state-based or federally facilitated exchange
Medicare Part A
Most Medicaid coverage
For additional information information on plans that qualify as minimum essential coverage, visit IRS.gov and CMS.gov.
Remember that in most cases your tax return will take more time to prepare so start now with an knowledgeable and experienced accounting firm. We at TYS LLP are here for you as a trusted advisor who will help guide you the complexity of tax preparation. Contact us today.