What is the individual shared responsibility provision?
Starting in 2014, the individual shared responsibility provision of the Affordable Care Act (ACA) calls for each individual to have minimum essential health coverage (known as minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. This is a nice way of saying that there is a penalty or additional tax for not having the required health coverage.
All U.S. citizens are subject to the individual shared responsibility provision as are all permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes. Foreign nationals who live in the United States for a short enough period that they do not become resident aliens for federal income tax purposes are not subject to the individual shared responsibility payment even though they may have to file a U.S. income tax return.
What is the individual shared responsibility provision penalty?
The tax penalty (shared responsibility payment) for not having insurance is paid on your taxes at the end of the year. If your taxable income is below 133% of the federal poverty level (FPL) you are exempt from this tax. The penalty is as follows:
- 2014 = $95 per person per year or 1% of your Income
- 2015 = $325 per person per year or 2% of your Income
- 2016 = $695 per person per year or 2.5% of your Income
- 2017 = Tax Penalty will increase by the rate of inflation going forward, or 2.5% of your Income
- The penalty is based on modified adjusted gross income (modified AGI)
- The total penalty for the taxable year cannot exceed the national average of the annual premiums of a bronze-level health insurance plan offered through the health insurance marketplaces.
- The maximum penalty per family is capped at no more than 300% of the minimum penalty (e.g. $695 x 300% = $2,085)
- Children under 18 are assessed at 50% of the minimum penalty.
- The penalty is pro-rated for the number of months you are without health insurance, though there is no penalty for a single gap in coverage of less than 3 months in a year.
- Health insurance providers will provide proof of coverage for their customers so as long as you have health insurance you don’t have to worry about the details.
Who is subject to the individual shared responsibility provision?
The provision applies to individuals of all ages, including children. The adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.
When does the individual shared responsibility provision go into effect?
The individual shared responsibility provision goes into effect on Jan. 1, 2014. It applies to each month in the calendar year. The amount of any payment owed takes into account the number of months in a given year an individual is without minimal essential coverage or an exemption.
Does the individual shared responsibility provision while living abroad apply to me?
Yes. However, U.S. citizens who live abroad for a calendar year (or at least 330 days within a 12 month period) are treated as having minimum essential coverage for the year (or period). To qualify for this exemption, you must qualify for an exclusion from income under section 911 (known as the portion of the tax code that defines the Foreign Earned Income Exclusion). If you’re uninsured and living abroad, you don’t have to pay the fee that other uninsured U.S. citizens may have to pay.
The exemptions for individuals who are not lawfully present in the United States can be claimed only as part of filing a federal income tax return. The exemption for those under the federal income tax return filing threshold is available automatically. No special action is needed.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
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