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Obamacare Penalty 2018 & 2019 | Understanding Affordable Care Act Tax Penalty

You may have heard that tax reform eliminated the Affordable Care Act (ACA) individual penalty, but it’s important to note that the removal of the so-called healthcare tax penalty starts with 2019 tax returns filed in 2020. Here are some details about the ACA penalty and how it is affected by the Tax Cuts and Jobs Act (TCJA) below.

Under the Affordable Care Act, taxpayers who do not have minimum essential health insurance coverage or qualify for an exemption were required to pay a penalty on their tax return. IRS data shows at least 4 million taxpayers paid the healthcare penalty for tax year 2016, and at least 5.6 million paid the penalty for tax year 2015.

How Is the Healthcare Penalty Calculated?
For tax years 2016, 2017, and 2018, the healthcare tax penalty is the greater of $695 per individual (up to a maximum of $2,085) or 2.5% of household income, less the taxpayer’s filing threshold amount. The healthcare penalty is calculated using a worksheet and entered on Schedule 4 of Form 1040. See “Reporting and Calculating the Payment” for more information.

Taxpayers who are eligible to claim a penalty exemption file Form 8965 with their tax return.

The IRS receives information about health coverage from health insurers and employers. These groups send Form 1095-A, Form 1095-B, and Form 1095-C to taxpayers and the IRS. These forms show who was covered and also let the IRS know if coverage lasted all year or part of the year.

Tip: Even though the individual penalty is eliminated beginning with tax year 2019 returns filed in 2020, taxpayers will continue to receive Forms 1095-A, 1095-B, and 1095-C with information about their coverage. Taxpayers should keep these forms with their tax returns. Taxpayers who purchased coverage through the Marketplace will continue to use information reported on Form 1095-A to calculate the premium tax credit; taxpayers who received an advance premium tax credit are required to reconcile information from Form 1095-A on their tax returns.

The Affordable Care Act (ACA) made several changes to the tax code intended to increase health insurance coverage, reduce health care costs, and finance health care reform.

To increase health insurance coverage, the ACA provided individuals and small employers with a tax credit to purchase insurance and imposed taxes on individuals with inadequate coverage and on employers who do not offer adequate coverage. To reduce health care costs and raise revenue for insurance expansion, the ACA imposed an excise tax on high-cost health plans. To raise additional revenue for reform, the ACA imposed excise taxes on health insurers, pharmaceutical companies, and manufacturers of medical devices; raised taxes on high-income families; and increased limits on the income tax deduction for medical expenses.

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