The Individual Shared Responsibility Payment

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 do not qualify for an exemption, you will liable for an individual shared responsibility payment.

If you and your dependents had minimum essential coverage for each month of the tax year, you indicate that by checking a box on your federal income tax return. If you qualify for an exemption, you are required to attach a form to your tax return to claim that exemption. If you did not have minimum essential coverage for each month of the tax year and are required to make the individual shared responsibility payment, the payment is calculated and made with your tax return.

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

In general, the individual shared responsibility payment for 2016 is the greater of:

• 2.5% of your household income above the filing threshold, or
• a flat dollar amount of $695 per adult and $347.50 per child (under age 18) in your family, but no more than $2,085 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 in 2015.

However this maximum fee will only impact the small number of high-income taxpayers who choose to go without health insurance.

Example of Payment Calculation

Edward and Julia are married and have two children under age 18. No family member has minimum essential coverage for any month during 2016, and no family member qualifies for an exemption. For 2016, their household income is $70,000 and their tax return filing threshold amount is $20,700.

• Using the household income formula: Subtract the tax return filing threshold amount for 2016 from the 2016 household income, then multiply the answer by one percent ($70,000 - $20,700 = $49,300). One percent of $49,300 equals $493.
• Using the flat dollar amount formula: Add $695 per adult for Edward and Julia to $347.50 per child - for their two children ($695.00 + $695.00 + $347.50 + $347.50 = $2,085).

Edward and Julia's shared responsibility payment for the year for 2016 is $2,085. This is because the household income formula amount of $493 is less than flat dollar formula amount of $2,085, and it is less than the expected annual national average premium for bronze level coverage for a family of four.

The individual shared responsibility payment amount is based on each individual's personal circumstances, and we can provide more information about calculating the payment. If you would like to know more regarding individual shared responsibility or other tax-related provisions of the Affordable Care Act, please call our office. We are here to assist you.

 

Reproduced with permission from CCH’s Client Letter, published and copyrighted by CCH Incorporated, 2700 Lake Cook Road, Riverwoods, IL 60015.