Obamacare and Your Tax Liability

Obamacare Healthcare Insurance Premium Tax


The Affordable Healthcare Act is benevolent in its intent: it seeks to make health insurance affordable, and prevents healthcare companies from denying coverage for preexisting conditions. However, it has also proven to be incredibly confusing to many taxpayers and has caused some to forego buying insurance on the Healthcare Marketplace. We’ve compiled a sort of 101 to help you understand how the Affordable Care Act can impact your 2017 tax return.

You qualify for a discount to help offset your insurance premiums if your total household income is between one to four times the Federal Poverty Level. You can choose to apply these credits to your insurance costs to lower your monthly bill, or apply them to your tax return the next year.

If you’re on Medicare or have insurance through your employer, Obamacare doesn’t apply to you. Here’s two important points for individuals:

Individual Mandate: Americans who can afford to obtain health coverage must do so for the majority of the year (more on that later) unless they qualify for an exemption. Filers who do not obtain insurance will be assessed a monthly fee.

Advanced Premium Tax Credits: Low-to-middle income Americans are eligible for tax credits, which can reduce the upfront cost of premiums on health insurance purchased through their State’s Health Insurance Marketplace.

Who is Exempt?

Some Americans are exempt, meaning that do not have to pay a penalty if they are not insured.

Such scenarios include:

  • Filers whose income is so low that they aren’t required to file a tax return.
  • Anyone who would have to pay more than 8% of their income for insurance
  • Members of religious groups whose beliefs prohibit health insurance benefits
  • Incarcerated individuals
  • Members of Native American tribes
  • Undocumented immigrants

Tax Penalties for the Uninsured 

You can be charged a tax penalty if a) you do not have health coverage and b) don’t qualify for an exemption. But how are penalties calculated? It depends on the following: your household income, how many people in your household were not covered by health insurance, and how long they were without coverage.

In 2016 the rates stood at 2.5% of income, or $695 per uninsured adult. Starting in 2017, annual rates will be adjusted for inflation. Note that if you are uninsured for only part of the year, the penalty is prorated to cover only the months for which you were uninsured. You will not be assessed a penalty for a gap in coverage less than three months long–which is called a “short gap.” However you are only allowed one short gap per year.

Image credit: Michael Havens

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