Both individuals and businesses are subject to penalties for failure to comply with requirements of the Affordable Care Act. Penalties are assessed and collected by the IRS, so there is little opportunity to avoid the mandates and associated penalties.
The following is a quick guide to the penalties that may be assessed for non-compliance.
Individual Mandate / Individual Shared Responsibility Provision
The individual mandate refers to the requirement for every US citizen to obtain minimum essential coverage as defined by the ACA. If you do not obtain coverage, or it fails to meet ACA standards then you will pay the following penalty on your tax return:
- $325 per adult
- $162.50 per child
- $975 maximum for a family
- OR, 2% of your taxable income, whichever is greater
In future years the penalty (called a fee by the authors of the ACA) will increase until it is equal to the cost of the lowest level of coverage authorized under ACA standards.
There are exemptions available, and if you think you qualify for an exemption (such as low income) then you file Form 8965 with your tax return to claim it.
The Affordable Care Act really places the burden for obtaining coverage squarely on the shoulders of individuals, since the majority will not qualify for an exemption and no longer have the option of going without health insurance.
Employer Mandate / Employer Shared Responsibility Provision
Beginning in 2015, all businesses with 50 employees or more must provide health insurance to 95% of their employees or pay a penalty. However, the business penalty is not computed on the tax return as with individuals, and is instead billed as a payment to the IRS.
Failure to provide any type of coverage will result in the following penalty:
- $2000 per employee (excluding the first 30 non-covered employees, and a special exclusion of the first 80 employees in 2015)
There are numerous rules surrounding business coverage, and it is interesting to note that 96% of all businesses in the US have fewer than 50 employees, so only 4% are subject to the employer mandate.
Businesses can also be penalized for failing to provide the required forms to employees that verify health coverage, so having a good tax accounting system in place is essential for large employers.
