Wednesday, February 26, 2014

Updated with recent IRS clarifications: What Will Be My Penalty If I Don't Get "Health Care Coverage" in 2014?

Updated August 19, 2014

What will be the penalty I will pay under the Affordable Care Act if I don't get "Health Care Coverage" in 2014?

The IRS explains:

If you don’t maintain health insurance coverage, you will need to either seek an exemption or make an individual shared responsibility payment for the period that you are not covered with the 2014 income tax return you file in 2015.

What is an individual shared responsibility payment?  Here is the answer from the IRS:

You may be exempt from the requirement to maintain qualified coverage 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.
A special hardship exemption applies to individuals who purchase their insurance through the Marketplace during the initial enrollment period for 2014 but due to the enrollment process have a coverage gap at the beginning of 2014.
For any month in 2014 that you or any of your dependents don’t maintain coverage and don’t qualify for an exemption, you will need to make an individual shared responsibility payment with your 2014 tax return filed in 2015.
However, if you went without coverage for less than three consecutive months during the year you may qualify for the short coverage gap exemption and will not have to make a payment for those months. If you have more than one short coverage gap during a year, the short coverage gap exemption only applies to the first.
If you (or any of your dependents) do not maintain coverage and do not qualify for an exemption, you will need to make an individual shared responsibility payment with your return. In general, the payment amount is either a percentage of your income or a flat dollar amount, whichever is greater. You will owe 1/12th of the annual payment for each month you (or your dependents) do not have coverage and are not exempt. The annual payment amount for 2014 is the greater of:
  • 1 percent of your household income that is above the tax return threshold for your filing status, such as Married Filing Jointly or single, or
  • Your family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a maximum of $285.
The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace in 2014. You will make the payment when you file your 2014 federal income tax return in 2015.
For example, a single adult under age 65 with household income less than $19,650 (but more than $10,150) would pay the $95 flat rate.  However, a single adult under age 65 with household income greater than $19,650 would pay an annual payment based on the 1 percent rate.
Find out more about the individual shared responsibility provision, as well as other tax-related provisions of the health care law at  For more information about your coverage options, financial assistance and the Marketplace, visit

1 percent of your household income that is above the "tax return threshold" 

So you may have to pay a penalty of 1 percent of your household income that is above the "tax return threshold" for your filing status.  What is the "tax return threshold" the penalty is based upon?  I could not find this specifically on the IRS website but my best guess is it is the threshold above which you are required to file a tax return (in most cases).  The IRS now (the end of July 2014) provided clarifications to help us understand the "tax return threshold" is indeed the threshold above which you are required to file a tax return (in most cases).  In addition, the IRS now defines your "household income" as:
Household income is the adjusted gross income from your tax return plus any excludible foreign earned income and tax-exempt interest you receive during the taxable year. Household income also includes the incomes of all of your dependents who are required to file tax returns.
These clarifications could be significant for taxpayers living in a foreign country that are not "U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period."  If they do not meet these qualifications they may now even with their "foreign earned income exclusion" be subject to the penalty because their income will not be below the "tax return threshold." Since the definition of "household income" now includes the "excludible foreign earned income," many who thought they would avoid the penalty now appear to be subject to the penalty.  This of course is subject to change but I would not count on it.  For more on the U.S. citizens that meet the  "not physically present in the United States" requirement see my post here. 

These changes demonstrate the ever changing world of U.S. Income Taxes and the Afford Care Act.  Be careful.

Now with these classifications you can get a better idea of what to expect regarding the "Individual Shared Responsibility Provision" or penalty.

This is not technically an "income tax" issue but it is implemented partially through the IRS and your federal income tax return.  While questions about health care coverage or insurance are not in my field of expertise and may cause my head to explode, I would be happy to address what affect your choices will have on your federal income tax return to the best of my ability at this time.  

The CPA Superhero wants you to succeed in business, life and retirement.  If I can be of service to you please contact me. I am very interested in businesses with long term opportunities and potential.  While my main business is preparing tax returns, I also work with clients to manage and develop their business(es).

Jeff Haywood, CPA
The CPA Superhero

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My posts contain general information that does not fit every situation, they are not all inclusive, and as always for your tax situation everything "depends on facts and circumstances."  In addition, the information/IRS requirements are always subject to change.  So call me to talk about your specific facts and circumstances and what you want to accomplish.