Beginning January 1, 2014, the Affordable Care Act (ACA) required individuals to carry minimum essential health coverage or make a shared responsibility payment.

Individuals are expected to report on their 2014 federal income tax return if they had minimum essential health coverage for all or part of the year. On line 61 of Form 1040, individuals will indicate if they were covered by minimum essential health coverage for 2014, if they were exempt from the requirement to carry minimum essential health coverage or if they are making an individual shared responsibility payment.

Minimum essential coverage
Minimum essential coverage is a term used to describe the type of coverage an individual needs to have to meet the individual responsibility requirement under the ACA. Majority of those covered by employer-sponsored health insurance are treated under the ACA as carrying minimum essential coverage. This coverage is obtained through the ACA Marketplace as well as TRICARE, Medicare and the Children’s Health Insurance Program (CHIP). A key exception to minimum essential coverage is coverage that provides limited benefits, such as stand-alone dental insurance, workers’ compensation insurance and accident or disability income insurance.

Exemptions
The ACA defines a number of categories of individuals excused from the individual shared responsibility requirement:

  • Short coverage gap
  • Household Income below the Return Filing Threshold
  • Members of Certain Religious Sects
  • Coverage is Considered Unaffordable
  • Certain Noncitizens
  • Members of Health Care Sharing Ministries
  • Members of Federally- Recognized Native American Nations
  • Incarcerated individuals
  • Hardships

Most of these exemptions are quite technical and have various sub-categories of exemptions. Some exemptions are only available through the ACA Marketplace, the IRS or sometimes both the ACA Marketplace and the IRS.

Shared responsibility payment
For 2014, the individual shared responsibility payment is the greater of:

  • 1% of household income that is above the tax return filing threshold for the individual’s filing status or
  • A flat dollar amount of $95 per adult, $47.50 per child and a maximum of $285 for an entire family. The flat dollar amount is capped at the cost of the national average premium for a bronze level health plan available through the ACA Marketplace in 2014.

Examples
Hayley and Ryan are married and have two children under 18. The couple did not have minimum essential coverage for any family member at any point in 2014 and no one qualified for an exemption from the individual shared responsibility requirement. In 2014, their household income is $70,000 and their filing threshold is $20,300. The IRS explained that to determine their shared responsibility payment using the income formula, the couple would subtract their Filing threshold ($20,300) from their 2014 household income ($70,000) for a total of $49,700.

1% of the $49,700 would equal $497. The couple’s flat dollar amount is $285, or $95 per adult and $47.50 per child. The total of $285 is the flat dollar amount in 2014. The family’s annual national average premium for bronze level coverage through the marketplace for 2014 is $9,792 ($2,448 x 4). Because $497 is greater than $285 and less than $9,792, their shared responsibility payment is $497 for 2014, or $41.41 per month for each month the family is uninsured.

If you have any questions about the ACA’s individual mandate, please contact us 417-881-0145.