Affordable Care Act Tax Provisions

Información en Español: Disposiciones del Acta del Cuidado de Salud de Bajo Precio

The Affordable Care Act was enacted on March 23, 2010. It contains some tax provisions that are in effect and more that will be implemented during the next several years. The following is a list of provisions for which the IRS has issued proposed and/or final guidance; additional information will be added to this page as it becomes available.

What's the penalty for not having health insurance?

What's the penalty for not having health insurance?
For starters, maybe you'll get a bigger tax bill next year
Published: November 21, 2014 07:00 PM

As most people know, the Affordable Care Act says that all Americans must either have health coverage or pay a penalty for not having health insurance. Here’s how that’s going to work.

In early 2015 people who had health insurance in 2014 will be getting forms from their insurer (including Medicare and Medicaid) verifying that they had coverage, and for what months of the year they had it. They’ll use that information to report their coverage on their tax returns.

Obviously, if you don’t have health insurance, you won’t be getting a form and will have to tell the Internal Revenue Service that you didn’t have insurance. You will either have to provide a valid reason why you didn't have to be covered, or pay a fine.

How big is the fine?
You may have heard that the penalty for not having health insurance is only $95 for the year, but that’s only for certain people. Here’s the full formula. For the 2014 tax year, you’ll pay the greater of these two numbers: A. 1 percent of your household income above $10,000; or B. $95 per adult and $47.50 per child, up to a family maximum of $285.
In 2015 the penalty gets bigger. It’s going to be 2 percent of your household income or $325 per adult and $162.50 per child up to a family maximum of $975.
To spare you the trouble of doing the math, the Tax Policy Center has a calculator that will figure your penalty for you. For instance, a family of four with an income of $60,000 would pay a penalty of $285 in 2014 and $650 in 2015.

What if I had insurance for part of the year?

If you were uninsured for less than 3 months, you won’t have to pay anything. But if you were uninsured for longer, your fine will be 1/12th of the annual total for every month you didn’t have coverage.

How will the government collect it?

It will be part of the income tax that you owe the government. If you are due a refund, the IRS will deduct your penalty from that.

What if I refuse to pay?

The IRS will keep track of what you owe, and the first chance it gets it will withhold it from a future refund. But unlike with other tax obligations, it can’t come after you with a lien or criminal prosecution.

Is anyone excused from these fines?

Yes. “Most people who are uninsured will qualify for an exemption, the government estimates,” says Karen Pollitz, a health insurance expert at the Kaiser Family Foundation. “The question is, will they get it? Until you get your exemption, you can’t file your taxes.”

What are the exemptions?
There's an extensive list, which you can find here. For instance, you don’t have to pay the fine if:
1. You earned too little money to be required to file taxes. Right now, the “tax filing threshold” is about $10,000. If you don’t file, the IRS won’t collect your insurance information. (This is the only exemption you can get automatically.)
2. The cheapest coverage you can find, even with tax credit premium subsidies, costs more than 8 percent of your household income.
3. You are in jail.
4. You are living abroad.
5. You are not a legal resident of the United States.
6. You have some kind of hardship. The government has come up with a long list of these, including having crushing medical debt, being homeless, or being the victim of a natural disaster or domestic violence. The biggest hardship category is the people who fall into the “coverage gap” because they make too little to qualify for health insurance premium subsidies but live in a state that’s not expanding Medicaid to cover all low-income residents. Here’s a complete list of eligible hardships.
7. You can apply for any of these exemptions right now, and probably should so you’ll have them granted by the time you have to file your income taxes. Here’s more information on how to do that.

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Hardship exemptions from the fee for not having health coverage

If any of the following circumstances apply to you, you may qualify for a “hardship” exemption from the penalty:
1. You were homeless
2. You were evicted in the past 6 months or were facing eviction or foreclosure
3. You received a shut-off notice from a utility company
4. You recently experienced domestic violence
5. You recently experienced the death of a close family member
6. You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property
7. You filed for bankruptcy in the last 6 months
8. You had medical expenses you couldn’t pay in the last 24 months that resulted in substantial debt
9. You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member
10. You expect to claim a child as a tax dependent who’s been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child. In this case, you don't have the pay the penalty for the child.
11. As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace
12. You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the Affordable Care Act
13. Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable 14. You experienced another hardship in obtaining health insurance

Applying for a hardship exemption

To apply for a hardship exemption, use this exemption form: Individuals who experience hardships (PDF). See instructions to help you fill out an exemption application (PDF).
How long a hardship exemption lasts
Hardship exemptions are usually provided for the month before the hardship, the months of the hardship, and the month after the hardship. However, the Marketplace may provide the exemption for additional months after the hardship, including up to a full calendar year.
For a hardship exemption based on affordability, the exemption will be granted for the remaining months in the coverage year.
For people ineligible for Medicaid only because a state hasn’t expanded Medicaid coverage, the hardship exemption will be granted for the whole calendar year.
For people eligible for Indian Health Services, the hardship exemption will be granted on a continuing basis. It may be kept for future years without having to submit another application. This is true as long as there are no changes to your membership in a tribe or eligibility for services from an Indian health care provider.

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Employer Reporting

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers.

More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.

The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs. Additional information on the MSSP is available on the Department of Health and Human Services website.

The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate.

Group Health Plan Requirements

The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 and REG-4003810, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts. Other information on group health plan requirements is available on the websites of the Departments of Health and Human Services and Labor and in additional guidance.

Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers

The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Revenue Procedure 2012-11, issued in conjunction with temporary regulations and a notice of proposed rulemaking, sets out the procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under 501(c)(29).

An overview of the CO-OP program is available on the Department of Health and Human Services website.

Medicare Part D Coverage Gap “donut hole” Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at www.medicare.gov.

Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. Initial guidance on the application of this provision can be found in Notice 2011-2, which also solicited comments on the application of the amended provision.

Employer Shared Responsibility Payment

Starting in 2014, certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Dec. 28, 2012, the Treasury Department and the IRS issued proposed regulations on the Employer Shared Responsibility provisions.  Comments may be submitted electronically, by mail or hand delivered to the IRS.  For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers. Other information, much of which has been incorporated into the proposed regulations, may be found in news releases IR-2011-92 and IR-2011-50 and Notices 2011-73, 2011-36, 2012-17 and 2012-58.  Additionally, Notice 2012-59 provides related guidance for group health plans on the waiting periods they may apply before starting coverage.

For More Information

For tips, fact sheets, questions and answers, videos and more, see our Affordable Care Act of 2010: News Releases, Multimedia and Legal Guidance page.

Page Last Reviewed or Updated: 28-Dec-2014