What Is the Shared Responsibility Payment for Health Care?

The Shared Responsibility Payment was a penalty connected to the individual mandate of the Affordable Care Act (ACA). This provision required most individuals to maintain a minimum level of health insurance for themselves and their dependents. Those who chose not to purchase qualifying health insurance and did not qualify for an exemption were required to make this payment with their federal tax return.

This federal penalty no longer exists. The Tax Cuts and Jobs Act of 2017 reduced the penalty amount to zero, effective for the 2019 tax year. While the formal requirement to have health insurance is still part of the law, there is no longer a federal financial consequence for not having it. However, the concept continues to exist at the state level.

The Federal Individual Mandate Penalty

From 2014 through 2018, taxpayers who did not maintain minimum essential health coverage for themselves and any dependents were subject to the shared responsibility payment. The payment was calculated using two different methods, and the taxpayer was obligated to pay whichever amount was higher.

The first calculation method was based on a percentage of household income. For 2018, this was 2.5% of the household income that exceeded the tax-filing threshold. For example, if a household’s income was $80,000 and the filing threshold was $20,000, the calculation would be based on the $60,000 difference.

The second method was a flat-dollar, per-person amount. In 2018, this was set at $695 per uninsured adult and $347.50 per uninsured child under 18. There was a family maximum for this method, which was capped at $2,085 for the year.

This penalty was prorated for the number of months a person was without coverage. If an individual was uninsured for only part of the year, they would owe 1/12th of the annual penalty for each month without coverage. The requirement to pay the greater of the two amounts meant that higher-income households often faced a much larger penalty than the flat-dollar figure, aligning the payment with their ability to afford insurance.

Exemptions from the Federal Penalty

The Internal Revenue Service (IRS) provided numerous exemptions that could relieve an individual from the shared responsibility payment. These exemptions were claimed on Form 8965, Health Coverage Exemptions, which was filed with the annual tax return.

One category of exemptions was related to health coverage itself. An individual who had a single short gap in coverage during the year that lasted less than three consecutive months was exempt. Another exemption was for individuals who could not find affordable coverage, defined as a plan where the lowest-cost premium would have been more than a certain percentage of their household income.

Income-related exemptions were also common. If a person’s gross income was below the amount that required them to file a federal tax return, they were exempt from the penalty. Similarly, individuals who were not lawfully present in the United States were not subject to the individual mandate.

A set of hardship exemptions was available for those facing difficult life circumstances, including:

• Homelessness
• Eviction or foreclosure
• Bankruptcy
• Receiving a shut-off notice from a utility company

To claim most hardship exemptions, individuals often had to apply for an Exemption Certificate Number (ECN) from the Health Insurance Marketplace.

Other exemptions were available for members of federally recognized Native American tribes or individuals participating in a recognized health care sharing ministry.

Reporting and Paying the Federal Penalty

For tax years 2014 through 2018, the process of reporting and paying the shared responsibility payment was integrated into the federal income tax return. After a taxpayer determined they did not have qualifying health coverage or an exemption, they would calculate the penalty amount.

The final penalty amount was then transferred to the taxpayer’s Form 1040 and entered on the line for “Other Taxes.” This added the payment to their total income tax liability for the year, which could either reduce an expected refund or increase the amount of tax owed.

The payment itself was not made separately but was bundled with the overall tax balance due. If the taxpayer was owed a refund, the IRS would deduct the penalty amount from the refund. If the taxpayer owed taxes, the penalty was included in the total balance they needed to pay.

The IRS was, however, limited in its enforcement actions for this specific penalty. It could not use liens or levies to collect unpaid shared responsibility payments, relying instead on withholding the amount from future tax refunds.

State-Level Individual Mandates

While the federal shared responsibility payment was reduced to $0, several states have implemented their own laws requiring residents to have health insurance coverage. These state-level mandates operate independently of the federal government and are enforced through state tax systems.

Currently, states including California, Massachusetts, New Jersey, and Rhode Island, along with the District of Columbia, have individual mandates with financial penalties. The specifics of these mandates, such as penalty amounts and available exemptions, are determined by each state’s laws and can differ from the old federal rules.

The exemptions available at the state level often mirror the former federal exemptions but can have unique criteria based on state-specific programs. Residents of these states must report their health coverage status on their state income tax returns. If uninsured and not qualified for a state-specific exemption, they will be assessed a penalty.

Vermont also has an individual mandate, but it does not currently impose a financial penalty. The existence of these state mandates means that for many Americans, the requirement to maintain health insurance remains a legal and financial obligation.