Under the Affordable Care Act, sometimes referred to as Obamacare, taxpayers are required to pay a “shared responsibility payment” if they are not covered by a health insurance plan that provides “minimum essential coverage”. This additional tax, or shared responsibility payment, is included with the federal tax return.
‘Minimum essential coverage’ is defined as health insurance obtained from an employer, government health insurance (Medicaid and Medicare), or any policy purchased through the online marketplace established by the Affordable Care Act.
When the Tax Cuts and Jobs Act was passed in late 2017, the amount of the shared responsibility payment for months beginning after December 31, 2018, was reduced to zero.
There was some misunderstanding by the general public after the TCJA was initially passed – many taxpayers and tax preparers believed that the shared responsibility payment had been revoked for the 2018 tax year.
However, for 2018, the shared responsibility payment is still calculated on the 2018 tax return. The TCJA does not eliminate the penalty until tax year 2019. The penalty for a taxpayer who did not have health insurance for 2018 is $695 per adult, or 2.5% of income over the filing threshold, whichever is greater. (Remember, the filing threshold is the amount a taxpayer can earn before being required to file a tax return. For 2018, due to the absence of the personal exemption, the filing threshold is the same amount as the standard deduction.)
The shared responsibility payment is reported on Line 61 of the new Schedule 4 – Form 1040. The total of all taxes entered on Schedule 4 is then transferred to Line 14 of the 2018 Form 1040.
The Affordable Care Act is still in effect, and taxpayers are still required to purchase health insurance. But, starting in 2019, taxpayers will not be subject to a financial penalty if they don’t.
Information Prior to Tax Year 2018
When ANY person on the tax return (Taxpayer, Spouse or any dependent) does not have minimum essential health care coverage or an exemption for every month of the year, Form 8965 must be completed to determine if they will be assessed a Responsibility Payment. The taxpayer may owe a Responsibility Payment for any month that the taxpayer, spouse or any dependent on the return does not have coverage or an exemption.
The annual Shared Responsibility Payment amount is a percentage of household income in excess of the return filing threshold or a flat dollar amount, whichever is greater, but is capped at the national average premium for a bronze level qualified health plan available through the Marketplace that would cover everyone in the tax household who does not have coverage and does not qualify for a coverage exemption.
Taxpayers owe 1/12th of the annual Shared Responsibility Payment for each month they or their dependent(s) do not have coverage and do not qualify for a coverage exemption.
For 2015, the annual Shared Responsibility Payment amount is the greater of the following:
2 percent of the household income that is above the tax return filing threshold for the taxpayer’s filing status, or
The family’s flat dollar amount, which is $325 per adult and $162.50 per child (under age 18), limited to a family maximum of $975.
The Shared Responsibility Payment is capped at the national average premium for a bronze level qualified health plan available through the Marketplace in 2015 that would cover everyone in the tax household who does not have coverage and does not qualify for a coverage exemption. For 2015, the monthly national average bronze plan premium is $207 per individual, with the maximum monthly premium set at $1,035 for a family of five or more people.
For 2016 and subsequent years, the excess income amount will be 2.5 percent of household income. For 2016, the applicable dollar amount will be $695 per adult and $347.50 per child under age 18 (50% of the adult amount). After 2016, the applicable dollar amounts may increase with cost-of-living adjustment.
NOTE: This is a guide on What is the Shared Responsibility Payment for 2018 and 2019. This is not intended as tax advice.
Additional Resources:
Instructions for Form 8965
Publication 5187 Affordable Care Act: What You and Your Family Need to Know
How to Enter – When Not Everyone on the Return Has Coverage or an Exemption