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What Is the Individual Shared Responsibility Provision?

Updated for Tax Year 2017


OVERVIEW

The individual shared responsibility provision lies at the heart of the Affordable Care Act—the 2010 health care law sometimes referred to as Obamacare. This is the provision that requires Americans to have health insurance coverage and that imposes a tax penalty on those who choose to go uninsured.


 

The article below is accurate for your 2017 taxes, the one that you file this year by the April 2018 deadline, including a few retroactive changes due to the passing of tax reform. Some tax information below will change for your 2018 taxes, but won’t impact your 2017 taxes. Learn more about tax reform here.

Purpose of the provision

The Affordable Care Act prohibits health insurers from denying people coverage based on their medical history—for example, because they have a pre-existing condition or a family history of a particular ailment. However, insurers and lawmakers feared that this would produce a situation in which many people wouldn't buy health insurance at all—until they got sick.

But to stay in business, a health insurance company needs to collect more money in premiums than it pays out in benefits, and that means healthy people have to buy insurance, too. That's where the individual shared responsibility provision comes in.

Individual responsibility

Under the ACA, the government, insurance companies, employers and individuals all share responsibility for keeping health coverage available and affordable. The individual shared responsibility provision outlines individuals' role in this. In short, it says you must either have basic health insurance, receive an exemption or pay a penalty. The law refers to this penalty as a "shared responsibility payment;" the Supreme Court has ruled that the penalty is a federal tax.

Beginning in 2019, the shared responsibility payment will no longer be assessed.

Avoiding the penalty

You avoid the penalty if you have health insurance that provides what the law calls "minimum essential coverage." This includes nearly all employer-provided health plans, as well as coverage provided through government programs such as Medicare, Medicaid, veterans' health benefits and military Tricare plans. Coverage purchased through online health-care exchanges also qualifies.

If in doubt, ask your plan provider whether your coverage qualifies. If you don't have coverage, you can also avoid the penalty if you qualify for an exemption. Exempt groups include:

  • Certain low-income people
  • Incarcerated individuals
  • Members of federally-recognized Native American tribes
  • Undocumented immigrants
  • Americans who are outside the country, and those whose religious beliefs prohibit them from accepting insurance benefits
  • Individuals who can demonstrate hardship that prevents you from getting coverage

Paying the penalty

The penalty you pay for not having health coverage is either a dollar amount or a percentage of family income, whichever is greater.

  • For the law's first year, 2014, the law set the annual penalty at $95 per adult and $47.50 per child, up to a maximum of $285 per family—or 1 percent of family income, whichever is greater.
  • For 2015, the penalty was set at $325 per adult and $162.50 per child, up to a maximum of $975 per family—or 2 percent of family income, whichever is greater.
  • For 2016 through 2018, the law set the penalty at $695 per adult and $347.50 per child, up to a maximum of $2,085 for a family—or 2.5 percent of income, whichever is greater. Penalties are to rise with inflation.
  • For 2019 and beyond the penalty will no longer be assessed.

Pro-rating the penalty

If you go uninsured for only part of a year, you must pay only a partial penalty, which is pro-rated for the amount of time you were without coverage. Say your penalty comes to $1,380, and you were uninsured for five months out of the year. Your penalty would be $575—five-12ths of $1,380. No penalty applies for uninsured periods of less than three months.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

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