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Obamacare Individual Mandate

The Individual Mandate and the Affordable Care Act

What is the Obamacare Individual Mandate?

Under the Affordable Care Act’s Individual Mandate, most Americans are required to have health insurance, or pay a tax penalty if they don't. This Obamacare rule is called the “Individual Mandate” or “Individual Shared Responsibility Fee” and started in 2014.

Coverage can include job-based health insurance, individual health insurance, or insurance through a government program such as Medicaid or Medicare.

Is there a penalty for not having health insurance?Obamacare_individual_mandate_penalty

Yes. The penalty for not having “minimum essential coverage” is either a flat fee or a percentage of household income, whichever is greater.

If you don’t have coverage in 2015, you’ll have to pay the higher of these two amounts:

  • 2% of your yearly household income. (Only the amount of income above the tax filing threshold is used to calculate the penalty. For 2015, the federal tax filing threshold is $10,150 for a person who files as a single, $20,300 for somebody who files jointly.) The maximum penalty is the national average premium for a bronze plan.

  • $325 per person for the year ($162.50 per child under 18). The maximum penalty per family using this method is $975.

As the chart shows below, the penalty increases each year.

Individual Mandate Tax Penalty - Example

Nancy is single and earns an annual income of $40,000/year. Nancy went uninsured in 2015. At tax time, Nancy is required to pay an Individual Shared Responsibility Fee.

Nancy will pay either 2% of income (minus the federal tax filing threshold) or $325, whichever is greater.

Nancy’s annual income ($40,000) minus the federal tax filing threshold ($10,150) is $29,850. Two percent (2%) of $29,850 is $597.

Since this amount is greater than $325, Nancy will pay a $597 tax penalty.

How can I avoid the tax penalty?

You may not have to pay the Individual Mandate tax penalty if you are uninsured, and:

  • Are required to pay more than 8% of your household income for the lowest cost bronze plan.

  • Are not a U.S. citizen, a U.S. national, or a resident alien lawfully present in the U.S.

  • Had one gap in coverage for less than three consecutive months during the year.

  • Won’t file a tax return because your income is below the tax filing threshold. In 2013, the tax filing threshold was $10,000 for individuals and $20,000 for a couple.

  • Are unable to qualify for Medicaid because your state has chosen not to expand the program.

  • Participate in a health care sharing ministry or are a member of a recognized religious sect with objections to health insurance.

  • Are a member of a federally recognized Indian tribe.

  • Are incarcerated.

  • Qualify for a hardship exemption

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