How to Respond to an IRS 5000a Tax Form

Receiving a letter regarding the individual shared responsibility payment can be confusing. This payment requirement is directly linked to a provision of the Affordable Care Act (ACA). The IRS sends this notice, formally known as a Letter CP71H or similar correspondence, when their records indicate a taxpayer may owe a penalty for not having qualifying health insurance for a specific tax year.

The notice is a proposed assessment based on information the IRS has, detailing the amount believed to be owed and for which tax period. Understanding the origin of this payment and the steps to take is necessary for addressing the issue. This correspondence typically relates to tax years prior to 2019.

The Shared Responsibility Payment Explained

The individual shared responsibility payment was a penalty established under the ACA to enforce the individual mandate, which required most people in the U.S. to have minimum essential health coverage. If a person did not have coverage and did not qualify for an exemption, they were required to make this payment when filing their federal income tax return for the year.

For its final years, such as 2018, the penalty was calculated as the higher of two amounts. One method was 2.5% of the household’s income above the annual tax filing threshold. The other was a flat fee of $695 per adult and $347.50 per child under 18, with a maximum family payment capped at $2,085.

A significant change occurred with the passage of the Tax Cuts and Jobs Act of 2017. This legislation reduced the individual shared responsibility payment to zero for tax years 2019 and forward. While the legal requirement to have health insurance remains, there is no longer a federal financial penalty, so IRS notices regarding this payment today almost always concern tax years 2018 or earlier.

Responding to a Notice About the Shared Responsibility Payment

Upon receiving a notice about a potential shared responsibility payment, you have two primary courses of action. The notice will specify the tax year in question, the proposed penalty amount, and a response deadline you must adhere to, to avoid further collection actions.

If you agree with the IRS assessment that you owed the penalty for the specified year, the notice will include instructions for payment. Agreeing and paying the proposed amount will resolve the issue for that tax year.

If you disagree with the notice, you must formally dispute it with the IRS by the provided deadline. Your response should be in writing and clearly state why you believe the assessment is incorrect. The most common reason for disagreement is that you either had qualifying health coverage or qualified for a coverage exemption for the period in question.

To support your claim, you must provide documentation. Proof of coverage is found on Form 1095-A, Form 1095-B, or Form 1095-C. If you are claiming a coverage exemption, you would have needed to file Form 8965, Health Coverage Exemptions, with your original tax return. Sending copies of these forms with your written explanation is needed to have the proposed penalty reversed.

Distinction from State-Level Health Mandates

The federal individual shared responsibility payment must be distinguished from state-level health insurance mandates. While the federal penalty was reduced to zero, several states and the District of Columbia have enacted their own individual mandates that require residents to maintain qualifying health coverage. These jurisdictions enforce their own rules and assess their own financial penalties for non-compliance.

These state-level requirements are entirely separate from the federal rules. A notice from the IRS about a shared responsibility payment is a federal tax matter only. Any potential penalties for failing to meet a state mandate would be handled through that state’s tax agency and reported on a state income tax return.

If you reside in a state with its own health insurance mandate, you must comply with its specific requirements to avoid a state tax penalty. These rules, penalty amounts, and exemption qualifications vary by state. Taxpayers should consult their state’s department of revenue for detailed information on their obligations, as compliance with federal law does not automatically satisfy these separate state-level laws.