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Small Business Employee Benefits and HR Blog

Individual Shared Responsibility Fee - What Happens if You Don't Buy Health Insurance

April 7, 2014
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The Affordable Care Act (aka ACA or Health Care Reform) requires certain individuals to purchase health insurance or else pay a fee at tax time. This is called the ACA's "individual shared responsibility fee" or "individual mandate".individual_shared_responsibility_fee-1

The individual shared responsibility fee is in effect as of 2014. Many people already have qualifying health insurance coverage (called minimum essential coverage) and do not need to do anything more than maintain that coverage.

For those that don't have qualifying health insurance, this article reviews what you need to know about the individual shared responsibility provision.

What is the Individual Shared Responsibility Fee?

The individual shared responsibility provision requires you and each member of your family to either:

  • Have minimum essential coverage, or

  • Have an exemption from the responsibility to have minimum essential coverage, or

  • Make a shared responsibility payment when you file your 2014 federal income tax return in 2015.  

You will report minimum essential coverage, report exemptions, or make any individual shared responsibility payment when you file your 2014 federal income tax return in 2015.

Tip: You don't need to report coverage, report exemptions, or make a payment on your 2013 federal tax return this year (2014). See these FAQs for what you need to know about health reform and your 2013 tax return.

What is Minimum Essential Coverage? 

Minimum essential coverage is the minimum amount of health insurance coverage an applicable individual must purchase to avoid paying the fee.

The following type of plans qualify as minimum essential coverage:

  • Health insurance coverage provided by your employer,

  • Health insurance purchased through the Health Insurance Marketplace in your state, where you may qualify for financial assistance,

  • Coverage provided under a government-sponsored program for which you are eligible (including Medicare, Medicaid, and health care programs for veterans),

  • Health insurance purchased directly from an insurance company, and

  • Other health insurance coverage that is recognized by the Department of Health & Human Services as minimum essential coverage.

The following plans do not qualify as minimum essential coverage:

  • Coverage only for accident, or disability income insurance, or any combination thereof

  • Limited scope dental or vision benefits

  • Benefits for long-term care, nursing home care, home health care, community-based care, or any combination thereof

  • Coverage for on-site medical clinics

  • Coverage only for a specified disease or illness

  • Hospital indemnity or other fixed indemnity insurance

How Much is the Individual Shared Responsibility Fee?

If you or any of your dependents don’t have minimum essential coverage and don’t meet criteria for an exemption (see below), you will owe an individual shared responsibility payment on your tax return.

For 2014, the annual payment amount is:

  • The greater of:

    • 1% of your household income (minus the tax return filing threshold for your filing status), or
    • $95 per adult and $47.50 per child, limited to a family maximum of $285
  • Note: The payment is capped at the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014.

The annual payments will increase over the first three years:

  • In 2015, the payment increases to the greater of 2% of household income or $325 per adult ($162.50 per child under 18).

  • In 2016, the payment increases to the greater of 2.5% of household income or $695 per adult ($347.50 per child under 18).

  • After 2016, payments will increase with inflation. 

Who is Exempt from the Individual Shared Responsibility Provision?

There are a few exemptions from the requirement to maintain minimum essential coverage. If you meet the criteria for one of these exemptions and do not have minimum essential coverage, you will not have to make a shared responsibility payment.

You may be exempt if you:

  • Have no affordable coverage options because the minimum amount you must pay for the annual premiums is more than 8% of your household income

  • Have a gap in coverage for less than three consecutive months

  • Have a household income below the return filing threshold ($10,150 for a single, 2014 tax return)

  • Are neither a U.S. citizen, a U.S. national, nor an alien lawfully present in the U.S.

  • Are a member of a health care sharing ministry

  • Are a member of a federally-recognized Indian tribe

  • Are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges

  • Are a member of a certain religious sect in existence since December 31, 1950, that is recognized by the Social Security Administration (SSA)

  • Qualify for a hardship exemption, including financial and personal hardships (became homeless, filed for bankruptcy, experienced domestic violence, etc). For a full list of hardship exemptions, see this chart via the IRS and these IRS Questions and Answers

What questions do you have about the ACA's individual shared responsibility fee?

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