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Affordable Care Act Penalty on Individuals with Less Than Required Health Insurance Coverage

February 14, 2014

The U.S government seems to be fully geared up to have all U.S. citizens comply with its minimum healthcare insurance coverage rule under the Affordable Care Act (Obamacare law). Beginning 2014 onward, the government will be imposing a penalty on individuals who fail to comply with the ‘individual mandate’, i.e. the basic minimum health insurance coverage required by an individual for him/herself and dependents during any month of the year.

Here is a brief overview of the imposable penalty and exemptions, prepared by AG Tax analysts, which Americans should find useful in confirming if they need to reassess their minimum insurance coverage and obtain additional coverage within the allowed gap of three months.

Affordable Care Act “Individual Mandate” Rule

As per the Obamacare law, all Americans should meet the minimum health coverage requirements by going through any government-sponsored program, employer-sponsored program, insurance purchased from the market, or other qualifying plans for oneself and dependents. Lack of coverage could lead to tax penalties based on the taxable income for each month.

Qualifying Health Insurance Coverage

–       Employer-sponsored plans, including COBRA and retiree coverage.

–       Self-Purchased Plans, including Health Insurance Marketplace’s qualified health plan.

–       Medicare Part A coverage, Medicare Advantage plans, and Medicaid coverage such as: Children’s Health Insurance Program (CHIP).

–       Veterans Administration’s Veterans health coverage, TRICARE, Peace Corps volunteers or Non-appropriated Fund Health Benefit Program coverage.

–       Refugee Medical Assistance supported by the Administration for Children and Families.

–       Health coverage offered on or before 31st December, 2014 by universities for students to purchase.

–       And other coverage plans qualifying as ‘minimum essential coverage’ by the Secretary of HHS (Health & Human Services).

Penalty Details

An individual must obtain the basic required insurance by the 31st of January, 2014 or, obtain an exemption (see below). Failure to do so would mean he/she would be liable to a monthly fee of 1% on their annual taxable Modified Adjusted Gross Income (MAGI) or $95 for each uninsured household member for 2014, potentially reaching 2.5% of MAGI, or $695 for 2016, due to cost of living adjustment.

The penalty amount equals the applicable percentage of an individual’s household income above the federal income tax return filing threshold, or the applicable dollar amount times the number of uninsured individuals in household, whichever is greater (maximum of 300% of the applicable dollar amount).

Situations When the Penalty is Exempted

–       If the individual is not a U.S. citizen or national or is a resident or non-resident alien illegally present in the U.S.

–       If the coverage gap is for less than 3 consecutive months in a year.

–       If an individual belongs to a religious community which is against insurance benefits.

–       If an individual is a member of a recognized healthcare sharing ministry, or of a federally recognized Indian tribe and qualifies for healthcare through an  Indian care provider.

–       If an individual’s income is below tax filing requirement threshold ($10,150 – Single Filers; $20,300 – Married filing Joint; and $13,050 – Heads of Household), or if the insurance premiums are more than 8% of the income.

–       If an individual has obtained a ‘hardship exception certificate’ from an Insurance Exchange for a financial or situational hardships that he/she is suffering (such as: purchasing additional coverage would deprive the family of necessities such as food, shelter, etc. or suffered damages due to fire, flood).

–       If the person is currently in prison or a correctional facility.

As of now, the government authorities are only allowed to automatically deduct the penalty amount from an individual’s tax refund if applicable, without subjecting the person to a lien or levy on their assets or criminal prosecution. However, if the current penalty does not prove effective, it may not take the government long to update the law in order to make it more enforceable.

Therefore, it is highly recommended that a U.S. citizen should consult a professional to validate their insurance plans and obtain the appropriate level of health insurance for themselves and their dependents to avoid tax penalties.

AG Tax LLP Can Help

If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.

Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.

We can assist with:

  • Canadian Personal and Corporate tax returns
  • Cross Border Taxation and Business Planning
  • U.S. Personal and Corporate Taxation
  • Disclosure of Foreign Assets and other information filings
  • Retirement planning
  • Estate Planning, Inheritance tax advice

To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:

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Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.

ABOUTAylett Grant Tax, LLP
With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
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With offices across Canada, we are positioned to manage and process the full scope of your Canadian, US and US Canada cross-border tax filing needs.
12752 28th Ave, Surrey, BC, V4A 2P4
104–4220 98 St NW Edmonton AB, T6E 6A1

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