With the passage of the 2017 Tax Cuts and Jobs Act, the Affordable Care Act’s (ACA) individual mandate was repealed. The individual mandate requires taxpayers to carry a minimum level of health coverage, unless they qualify for a hardship exemption. Without this coverage taxpayers will incur a tax penalty.
Employer mandate
Although this portion of the ACA was repealed, the employer mandate portion was not. The employer mandate still requires that employers with 50 or more full-time employees offer health insurance coverage that provides
- Minimum essential coverage to employees and dependents
- Minimum value (at least 60% of total allowed costs)
- Affordable premiums (less than 9.56% of the employee’s household income)
So, if your employer provides the above coverage, the repeal of the individual mandate should not affect you.
Individual Mandate
Although the individual mandate was repealed at the end of 2017, it will not go into effect until 2019, meaning it is still very much in effect for 2018. This means that if a taxpayer is not covered by minimum essential health insurance in 2018, he or she will be subject to a penalty, known as the individual shared responsibility payment when they file their tax return. The penalty is the higher of
- 5% of ann
ual house hold income, up to a maximum of the total annual premium for the national average price of a Bronze plan on the exchange, or - $695 per adult and $347.50 per child under 18, up to a maximum of $2,085 per household.
The above penalties are pro-rated by 1/12 for every month you do not have coverage, unless it is only 1-2 months (the “short gap” exemption.) The penalty is calculated in the worksheets in the Form 8965, Health Coverage Exemptions instructions.
You may qualify for an exemption to this penalty if you meet certain criteria, such as the lowest-priced coverage (Bronze plan) available to you is more than 8.05% of your household income or you don’t have to file a tax return if your income is below the filing requirement. For a complete list of qualifying exemptions please refer to the Form 8965 instructions. To apply for the exemption, you must file Form 8965, Health Coverage Exemptions, with your tax return.
Premium Tax Credit
Although the individual mandate has been repealed, and taxpayers are no longer required to have health insurance, insurance coverage will still be available on affordable insurance exchanges. When applying, if your expected annual income is below a threshold, you may be eligible for a subsidy for your monthly premiums. This subsidy is known as the Advanced Premium Tax Credit (APTC).
At the end of the year, when youfile your tax return, and your actual annual income is determined, you will need to file Form 8962, Premium Tax Credit. The insurance exchange will provide you with Form 1095-A, Health Insurance Marketplace Statement, in January subsequent to yearend, listing policy information, including the monthly premium and the monthly advance payment of premium tax credit. Based upon this information and your actual modified adjusted gross income, you will calculate what your actual PTC is, which may be more or less than the APTC. If it is more, you will have to repay some or all of the credit; if it is less, you may get additional credit. This is why it is important not only to provide a reasonable estimate upon application with the exchange, but to notify the exchange of any significant changes in income during the year, due to employment of a household member or other life events. Having to repay the advanced premium tax credit when filing your income tax return can be a very unwelcome surprise!
The individual mandate portion of the ACA is complex and can be confusing to navigate. If you have any questions about how the individual mandate affects you and your tax situation, please contact us for more information.
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