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Obamacare or the Patient Protection and Affordable Care Act of 2010 imposes penalties on everyone in the U.S. who do not have health insurance and goes without benefits for more than six months without qualifying for exemptions. It made numerous changes to the tax law as the penalties are paid on your tax returns.

Penalties For Not Having Insurance

A person who does not have insurance for at least nine months of the year will have to pay an additional tax. The penalty for the ACA is pro-rated for every month that you go without coverage. This is one-twelfth the annual penalty amount for every month that a person goes without coverage. In this case, coverage is taken as being insured for at least one day of the month in consideration.

Beginning in 2016, the tax to be paid was increased to 2.5% of a person’s adjusted gross income, which figures on the annual tax return. There is a cap on the maximum level of tax, it will never exceed the national average cost of buying the Bronze health insurance plan. Estimates from the Congressional Budget on these are around $12,000 for families and $4,500 for individuals annually.

The tax will also never be below a minimum flat tax. These are $347.50 per child and $695 per adult, capped per family at $2,085. For the tax year, 2017 and beyond the flat fee will be adjusted with the Consumer Price index. For 2017 the adjustment for inflation was zero and the IRS again confirmed that for 2018, there will still be no inflation adjustment so the fine will remain $695 per every uninsured adult.

Despite the efforts by Republican lawmakers to get rid of the ACA, it still applies and the IRS is still collecting it On the Republican President’s first day, Trump signed an executive order that directed federal agencies as lenient as they can when enforcing Obamacare.

In a letter from the IRS in June 2017, they confirmed that the executive order does in no way affect the law and the taxpayers are still required to follow the law. Starting 2018 every taxpayer will be required to fill out the question on whether they had health insurance during the concluded year, failure to do so will cause rejected returns.

The Current Maximum Penalties

As stated earlier the fine for the ACA can never be more than the average national cost of a Bronze Plan. In August 2016 the IRS published the average national cost of a 2016 bronze plan: it was $2,676 per year for a single individual ($223 per month) and $13,380 per year for a family having five or more members ($1,115 per month).

There was an increase of 25% in rates for the year 2017 thus the average national cost of a bronze plan and subsequently, the maximum fine is substantially higher in 2017. The Revenue Procedure 2017-48 raised the maximum fine to $3,264 per year for an individual ($272 per month), and $16,320 per year for a family with five or more ($1,360 per month) if they are not insured in 2017.

Tax Benefits Deducted

After itemizing a person can only subtract medical expenses that are not covered by the health insurance and are more than 10% of their income. Before Obamacare, only expenses that were more than 7.5% of a person’s income could be deducted.

When using a Health Savings Account only $2,500 can be saved pre-tax. The ACA removed over the counter drugs from medical expenses that are eligible for flexible spending accounts. When not using FSA money for medical expenses there is a 20% increase in a tax penalty. There are more detailed guidelines provided by the IRS on HSAs.

Who Is Exempted From The Penalties?

If a person qualifies for exemption under the ACA, they will not be charged the fine even if they are not insured. Exemptions
include:

  • The most affordable coverage will cost more than 8% of the household’s income
  • An individual was uninsured for less than three months in the year.
  • A person’s income is too low to file a tax return
  • Native Americans
  • People with Religious objections to insurance
  • Incarcerated individuals.
  • A person has not been in the country for more than a year
  • Qualify for hardship exemptions due to homelessness, eviction, bankruptcy or similar circumstances.