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By Marc C. Weber, CPA

Most Americans are required to have a basic level of health insurance under the Affordable Care Act (ACA) enacted in 2010. The ACA, also known as Obamacare, penalizes individuals who do not have the minimum essential health coverage through their employer, the Health Insurance Marketplace, a government-sponsored program, private insurance, or another qualifying coverage program. The penalty goes by a few different names: individual shared responsibility payment, individual mandate, and the health care tax.

For those filing tax returns for 2017, the individual mandate is calculated two different ways: as a percentage of household income and per person. Taxpayers subject to the mandate will pay the higher of the two methods (illustrated below).

In either case, the payment amount is capped at the cost of the national average premium for a Bronze health plan available through the Marketplace.

While the mandate calculation appears straightforward, three parts of the mandate calculation may create some confusion among taxpayers: calculating household income, determining the yearly tax filing requirement, and determining the total yearly premium for the national average price of a Marketplace Bronze plan. The following charts illustrate each part of the mandate calculation.

If a taxpayer has coverage for part of the year, the mandate under each method is prorated for each month a taxpayer does not have coverage. Health coverage providers, the Marketplace, and some employers will issue Form 1095 documents early in the tax filing season. These documents will indicate which months a taxpayer did and did not have the minimum essential health coverage during the year.

Several exemptions exist that allow taxpayers to avoid paying the mandate. One of the more common exemptions is the “short gap” exemption. Anyone with a gap in health insurance coverage of no more than two consecutive months can claim this exemption. Individuals who change jobs during the year and are required to wait a certain period before enrolling in their new employer’s health insurance plan can often take advantage of this exemption. Taxpayers can claim coverage exemptions on Form 8965, Health Coverage Exemptions, and attach it to Form 1040, Form 1040A, or Form 1040EZ. These forms can also be filed electronically. Taxpayers can go online to see if they qualify for any individual mandate exemptions.

If all family members had the minimum essential coverage for each month of the tax year, the taxpayer will indicate this on their tax return by checking a box on Form 1040, 1040A, or 1040EZ. No further action is required. If an individual mandate payment is required, the payment is reported on Form 1040 in the Other Taxes section and in the corresponding sections on Form 1040A and 1040EZ. Taxpayers can estimate online  their individual mandate payment.

Although many existing tax provisions changed with the passage of the Tax Cuts and Jobs Act of 2017, there won’t be any significant changes to the individual mandate provisions when taxpayers file their 2018 tax returns. While both houses of Congress voted to essentially repeal the ACA’s individual mandate at the end of 2017, the repeal does not become effective until the 2019 tax year.

Marc C. Weber, CPA, is the owner of Weber Tax & Consulting LLC in Lancaster, Pa. He is a PICPA member who serves on the Executive Committee of its South Central Chapter and is chair of the chapter’s Schools and Colleges Committee. He can be reached at mweber@webertax.com.