The Individual Shared Responsibility Payment

Larry Villano, Publisher of Loopholelewy.com

Beginning in 2014, the individual shared responsibility provision of the Affordable Care Act requires each individual to:

  • Maintain a minimum level of health care coverage – known as minimum essential coverage, or
  • Qualify for an exemption, or
  • Make an individual shared responsibility payment when filing their federal income tax returns.

Minimum essential coverage generally includes government-sponsored programs, employer-provided health coverage, and coverage purchased in the individual market, including the Health Insurance Marketplace.

Most people already have health insurance coverage that qualifies as minimum essential coverage, and therefore will not need to make a payment if they maintain their qualified coverage. However, for each month that you or a member of your family is without minimum essential coverage and does not qualify for an exemption, you will need to make an individual shared responsibility payment.

  • If you and your dependents had minimum essential coverage for each month of 2014, you will check a box indicating that when you file your 2014 federal income tax return.
  • If you qualify for an exemption, you will attach a form to your tax return to claim that exemption.
  • If you are required to make the individual shared responsibility payment, you will calculate your payment and make the payment with your return.

If you choose to make an individual shared responsibility payment instead of maintaining minimum essential coverage, this means you will not have health insurance coverage to help pay for medical expenses.

In general, the individual shared responsibility payment for 2014 is the greater of:

  • One percent of your household income above the income filing threshold for your tax filing status, or
  • A flat dollar amount of $95 per adult and $47.50 per child (under age 18) in your family, but no more than $285 per family.

The individual shared responsibility payment is also capped at the cost of the national average premium for bronze level health plans available through the Marketplace that would cover everyone in your family who does not have minimum essential coverage and does not qualify for an exemption – for example, $12,240 for a family of five.

However this maximum fee will only impact the small number of high-income taxpayers who choose to go without health insurance. The payment amount is based on each individual’s personal circumstances.

Information about figuring the payment and can be found on the IRS's Calculating the Payment page.

Examples of Payment Calculation:

Example 1: Married with Two Children:
Eduardo and Julia are married and have two children under age 18. No family member has minimum essential coverage for any month during 2014, and no family member qualifies for an exemption. For 2014, their household income is $70,000 and their tax return filing threshold amount is $20,300.

  • Using the household income formula:
    • Subtract the tax return filing threshold amount for 2014 from the 2014 household income, then multiply the answer by one percent (0.01).
      • $70,000 - $20,300 = $49,700.
      • One percent of $49,700 equals $497.00.
  • Using the flat dollar amount formula:
    • Add $95 per adult for Eduardo and Julia to $47.50 per child – for their two children.
    • $95.00 + $95.00 + $47.50 + $47.50 = $285.00.

Result:

  • The family’s annual national average premium for bronze level coverage for 2014 is $9,792 ($2,448 x 4).
  • Because $497 is greater than $285 and is less than $9,792, Eduardo and Julia’s shared responsibility payment is $497 for 2014, or $41.41 per month for each month the family is uninsured (1/12 of $497 equals $41.41).
  • Eduardo and Julia will make their shared responsibility payment for the months they and their children were uninsured when they file their 2014 income tax return, which is due in April 2015.

Example 2: Single individual with $40,000 income:
Jim, an unmarried individual with no dependents, does not have minimum essential coverage for any month during 2014 and does not qualify for an exemption. For 2014, Jim’s household income is $40,000 and his filing threshold is $10,150.

  • To determine his payment using the income formula:
    • Subtract $10,150 (filing threshold) from $40,000 (2014 household income).
    • The result is $29,850.
    • One percent of $29,850 equals $298.50.
    • Jim’s flat dollar amount is $95.

Result:

  • Jim’s annual national average premium for bronze level coverage for 2014 is $2,448.
  • Because $298.50 is greater than $95 and is less than $2,448, Jim’s shared responsibility payment for 2014 is $298.50, or $24.87 for each month he is uninsured (1/12 of $298.50 equals $24.87).
  • Jim will make his shared responsibility payment for the months he was uninsured when he files his 2014 income tax return, which is due in April 2015.

More information can be found on irs.gov/aca.