Public opinions about the Affordable Care Act range from devotion to disdain, but no one likes having to pay a tax penalty. The health law's individual mandate provision has required people to sign up for creditable health insurance coverage or claim an exemption from the requirement, or else they'd owe an Obamacare penalty.
As part of the recently passed tax reform law, the individual mandate was eliminated, with the measure becoming effective at the end of 2018. That means you won't owe an Obamacare penalty starting in 2019, but those filing their tax returns in the next few months will still potentially face two more tax hits because of the provision.
What the Obamacare penalty is for the 2017 tax year
Obamacare penalties began at relatively modest levels back in 2014, with caps of $95 per adult and $47.50 per child and a family maximum of just $285. An alternate calculation required payment of 1% of income above the filing threshold income level for each taxpayer, up to a maximum calculated using the price of certain Obamacare health plans.
Over the years, though, those penalties increased. In 2015, the limits were $325 per adult, $162.50 per child, and $975 per family, with an alternative calculation of 2% of income above the filing threshold. Finally, penalties reached their top level in 2016, with the adult penalty climbing to $695, $347.50 per child, and a maximum of $2,085 per family and alternative percentage of 2.5% of income.
Inflation adjustments scheduled to take effect beginning in 2017 didn't result in any changes from the 2016 levels. The $695, $347.50, $2,085, and 2.5% amounts remain in force for the 2017 tax year.
Why Obamacare penalties are going away
The tax reform law added a provision that took out the existing minimum essential coverage penalty. Specifically, Section 11081 of the tax reform law amended Section 5000A of the Internal Revenue Code by replacing the 2.5% alternative percentage with 0% and the $695 per adult calculation with $0. Those changes cascaded throughout to make any shared responsibility payment $0.
Lawmakers included the elimination of Obamacare penalties for a couple of reasons. First, many Republican lawmakers had unsuccessfully looked for ways to repeal the Affordable Care Act explicitly, but they had failed to reach consensus when they addressed the issue head-on. Second, Congress was able to claim cost savings by eliminating the individual mandate, because even though tax penalty revenue would fall, projections expect cost savings from fewer people participating in the program will more than offset lost penalties.
Will you have to pay Obamacare penalties?
Despite the repeal, Obamacare penalties are still in place for 2017 and 2018. Those who don't meet the minimum coverage requirements will potentially have to pay.
You're still allowed to seek an exemption from Obamacare penalties, which is available for a wide variety of reasons. Those with insufficient income to pay even for low-priced coverage can apply for an exemption, as can those who face hardships such as being homeless, facing eviction or foreclosure, filing bankruptcy, or suffering property damage due to a natural disaster, among others. Exemptions for healthcare sharing ministries, federally recognized tribes, or recognized objecting religious sects can also be available.
If none of the exemption provisions apply to you, then your only option will be to pay the penalty. For those in that situation, the only silver lining is that starting in 2019, you won't have to worry about Obamacare penalties regardless of what coverage decisions you make.