Tax Tips for Individuals
Affordable Care Act Tax provisions for 2014
The Individual Shared Responsibility Provision
Under the Affordable Care Act, the Federal government, State governments, insurers, employers, and individuals share the responsibility for health insurance coverage beginning in 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.
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. Filing electronically is the easiest way to file a complete and accurate tax return. Electronic Filing options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.
Minimum Essential Coverage
If you and your family need to acquire minimum essential coverage, you may have several options. They include:
- Health insurance coverage provided by your employer,
- Health insurance purchased through the Health Insurance Marketplace in the area where you live, 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.
U.S. citizens who are residents of a foreign country for an entire year, and residents of U.S. territories, are deemed to have minimum essential coverage. See questions 11 and 12 of our Questions and Answers for more information.
For purposes of the individual shared responsibility payment, you are considered to have minimum essential coverage for the entire month as long as you have minimum essential coverage for at least one day during that month. For example, if you start a new job on June 26 and are covered under your employer’s health coverage starting on that day, you’re treated as having coverage for the entire month of June. Similarly, if you’re eligible for an exemption for any one day of a month, you’re treated as exempt for the entire month.
You can learn more at HealthCare.gov about which health insurance options are available to you, how to purchase health insurance coverage, and how to get financial assistance with the cost of insurance. If you purchase health insurance through the Marketplace and you meet certain requirements, you may be eligible for a premium tax credit to help pay your premiums. Learn more about the premium tax credit. Each year the Health Insurance Marketplace has an open enrollment period. The open enrollment period to purchase health care insurance for 2015 runs from Nov. 15, 2014, through Feb. 15, 2015. Contact the Marketplace at HealthCare.gov to enroll.
You may be exempt from the requirement to maintain minimum essential coverage and thus will not have to make a shared responsibility payment when you file your 2014 federal income tax return in 2015, if you meet certain criteria.
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 eight percent of your household income,
- Have a gap in coverage for less than three consecutive months, or
- Qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage, or belonging to a group explicitly exempt from the requirement.
Because of the Affordable Care Act, more Americans have access to coverage that is affordable. However, if there is no coverage available to you and your family that costs less than eight percent of your household income, you can qualify for an exemption.
An exemption applies to individuals who purchased their insurance through the Marketplace during the initial enrollment period for 2014, which ran from October 1, 2013, through March 31, 2014. This hardship exemption applied from January 1, 2014, until the start of your health care coverage, which, if you enrolled between March 16 and March 31 would generally have been May 1. (See this HHS Question and Answer for more information.) Another hardship exemption may apply if you have been notified that your health insurance policy will not be renewed and you consider the other plans available to you unaffordable. (See this HHS guidance and Questions and Answers for more information.)
How you get an exemption depends upon the type of exemption for which you are eligible. You can obtain some exemptions only from the Marketplace, others only from the IRS, and yet others from either the Marketplace or the IRS.
Reporting Coverage or Exemptions
The individual shared responsibility provision went into effect in 2014. You won’t need to report minimum essential coverage or exemptions or make any individual shared responsibility payment until you file your 2014 federal income tax return in 2015. Information will be made available later about how to report your coverage or exemption (or make a payment) on your 2014 income tax return.
Making a Payment
If you or any of your dependents don’t have minimum essential coverage and don’t have an exemption, you will need to make an individual shared responsibility payment on your tax return. It is important to remember that choosing to make the individual shared responsibility payment instead of purchasing minimum essential coverage means you will also have to pay the entire cost of all your medical care. You won't be protected from the kind of very high medical bills that can sometimes lead to bankruptcy.
If you must make an individual shared responsibility payment, the annual payment amount is the greater of a percentage of your household income or a flat dollar amount, but is capped at the national average premium for a bronze level health plan available through the Marketplace. You will owe 1/12th of the annual payment for each month you or your dependent(s) don’t have either coverage or an exemption.
For 2014, the annual payment amount is:
- The greater of:
- 1 percent of your household income that is above the tax return filing threshold for your filing status, or
- Your family's flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285,
- But capped at the cost of the national average premium for a bronze level health plan available through the Marketplace in 2014. See Rev. Proc. 2014-46 for the 2014 national average premium for a bronze level health plan available through the Marketplace.
Check out these basic examples of the payment calculation and the federal tax filing requirement thresholds. For more detailed examples, see the individual shared responsibility provision final regulations.
The percentages and flat dollar amounts increase over the first three years. In 2015, the income percentage increases to 2 percent of household income and the flat dollar amount increases to $325 per adult ($162.50 per child under 18). In 2016, these figures increase to 2.5 percent of household income and $695 per adult ($347.50 per child under 18). After 2016, these figures increase with inflation.
Information will be made available later about how you will account for the payment on your 2014 federal income tax return filed in 2015.
More detailed information about the individual shared responsibility provision is available in ourQuestions and Answers. The Department of the Treasury and the IRS have issued the following legal guidance related to the individual shared responsibility provision, including detailed examples of the payment calculation:
- Final regulations on the individual shared responsibility provision.
- Notice 2013-42, which provides transition relief from the individual shared responsibility provision for employees and their families who are eligible to enroll in employer-sponsored health plans with a plan year other than a calendar year if the plan year begins in 2013 and ends in 2014.
- Proposed regulations on minimum essential coverage and other rules regarding the shared responsibility provision.
- Notice 2014-10, which provides transition relief for individuals enrolled in coverage under certain limited-benefit Medicaid and TRICARE programs that are not minimum essential coverage.
- Rev. Proc. 2014-46, which provides the 2014 monthly national average premium for qualified health plans that have a bronze level of coverage.
Additional information on exemptions and minimum essential coverage is available in final regulations issued by the Department of Health & Human Services.