Robert Loe CPA

Medical Coverage and Federal Income Taxes- A 2017 Update:

As a reminder for tax year 2016 (taxes filed in 2017), the IRS will not consider a return complete and accurate if the taxpayer does not report full-year coverage, claim a coverage exemption, or report a shared responsibility payment on the tax return.

The individual shared responsibility provision requires you and each member of your family to do at least one of the following:

  • Have qualifying health coverage called minimum essential coverage
  • Qualify for a health coverage exemption
  • Make a shared responsibility payment with your federal income tax return for the months that you did not have coverage or an exemption.

Report Minimum Essential Coverage

Many people already have minimum essential coverage. If this applies to you, you’ll simply report your coverage when you file your tax return every year. If you and your family members all had minimum essential coverage for each month of the tax year, you will indicate this on your tax return by checking a box on Form 1040, 1040A or 1040EZ. No further action is required.

Minimum essential coverage includes:

  • Most health coverage provided by your employer
  • Health insurance purchased through a Health Insurance Marketplace in the area where you live, where you may qualify for financial assistance
  • Coverage provided under a government-sponsored program for which you are eligible – including Medicare, most Medicaid, and health care programs for veterans
  • Health insurance purchased directly from an insurance company
  • Other health coverage that is recognized by the Department of Health & Human Services as minimum essential coverage.

Claim or Report a Coverage Exemption

If you meet certain criteria for the tax year, you may be exempt from the requirement to have minimum essential coverage. You will not have to make a shared responsibility payment for any month that you are exempt. Instead, you’ll file Form 8965, Health Coverage Exemptions, with your federal income tax return. For any month that you do not qualify for a coverage exemption, you will need to have minimum essential coverage or make a shared responsibility payment.

How you get an exemption depends upon the type of coverage exemption for which you are eligible. You can claim most exemptions when you file your tax return. However, you must get certain exemptions from your Marketplace in advance. You’ll report a marketplace-granted exemption when you file your tax return.
You may be exempt if you meet one of the following:

  • The lowest-cost coverage available to you is considered unaffordable
  • You have a gap in coverage that is less than 3 consecutive months
  • You qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage, or belonging to a group specifically exempt from the coverage requirement

Calculate and Make a Shared Responsibility Payment

For any month during the year that you or any of your family members don’t have minimum essential coverage and don’t qualify for a coverage exemption, you are required to make an individual shared responsibility payment when you file your tax return. The payment is reported on Form 1040 in the Other Taxes section and on the corresponding sections on Form 1040A and 1040EZ.

In general, the annual payment amount is the greater of a percentage of your household income or a flat dollar amount, but is capped at the national average premium for a bronze level health plan available through the Marketplace.
If you must make a payment, you can use the worksheets located in the instructions to Form 8965, Health Coverage Exemptions, to figure the shared responsibility payment amount due. For more information about determining the amount and reporting your payment on your tax return, see the IRS Reporting and Calculating the Payment page.
To estimate the amount of individual shared responsibility payment you may owe – see this shared responsibility payment estimator.

Health coverage providers, the Marketplace, and some employers will issue Form 1095 information documents early in the tax filing season. If you receive these information forms you should keep them with your tax documents.  The forms should not be filed with your tax return.

For any month that you or anyone in your family does not have minimum essential coverage, you will need to claim or report a coverage exemption or make a shared responsibility payment when you file your tax return.

With the tax that has resulted from the Affordable Care Act, it is important to make sure that your taxes are stated correctly. Understatement of income will result in a credit that must be paid back to the IRS.

The premium tax credit, or PTC, is a refundable credit that helps eligible individuals and families with low or moderate income afford health insurance purchased through a Health Insurance Marketplace. To get this credit, you must meet certain requirements and file a tax return. Use the IRS interactive premium tax credit tool to see if you qualify.

Premium Tax Credit Tool

Do I Qualify button


Not having a qualified healthcare plan that meets the minimum essential coverage requirements means that you will have to pay a fee called the individual shared responsibility payment/penalty. So, if you don’t have a healthcare plan that is eligible, what kind of fee are you looking at?

For tax year 2016, the penalty will rise to 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, to a maximum of $2,085.

For tax year 2017 and beyond, the percentage option will remain at 2.5%, but the flat fee will be adjusted for inflation.


**Affordable Care Act Image from:

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