Chat with us, powered by LiveChat


The next key provision of the Affordable Care Act is the Individual Mandate Penalty. This is the provision that was taken to the Supreme Court as unconstitutional. This is the one you pay on your tax return if you do not have minimum essential health coverage. This is the one that the Supreme Court said was not a tax, but rather a penalty, except that you pay it on your Individual Income Tax Return under the section called, “Other Taxes.”

(Just a note. Also in “Other Taxes” is the Self-Employment Tax. The tax on the profit of Self-Employed individuals. Perhaps we could call this the Self-Employment Penalty, because sometimes that’s what it seems like. These Self-Employed people who have a decent-sized profit really do get hit hard.)

There are usually a few questions about the Individual Mandate Penalty.

What is minimum essential health coverage? I won’t try to fully explain it (because it’s unexplainable!). To qualify for minimum essential coverage, your health insurance plan must provide the following items: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance abuse, Rx, rehabilitative services and devices, laboratory services, preventative and wellness services, and pediatric services…Here is a link to the IRS page on the minimum essential coverage. They do a nice job of listing exactly what does and does not qualify as minimum essential coverage. It also has a section about coverage under government-sponsored programs (i.e. Medicare, Medicaid).

ACA Penalties

How much is the penalty? Good question. For 2014, the penalty is the greater of $95 per person or 1% of household income minus certain thresholds. It does not seem like much. And I suppose it isn’t that much. Have you ever heard of the phrase, “Nickle and Dime.” Next year the penalty increases to $325 per person or 2% of income and in 2016 its up to $695 per person or 2.5% of income. Not really talking Nickles and Dimes anymore. As usually with the IRS and the Affordable Care Act, there are calculations that need to be made to come up with the exact amount of the penalty so it’s not like you’d take your income and multiple by 1% to figure the penalty.

Aren’t there some exemptions to this individual mandate penalty? Yes! Originally, there were about 6 exemptions from this penalty. Now there are as many as 19. You can see the whole list here. My personal opinion is that almost anyone can claim one of these exemptions. Especially when you consider the hardship exemptions. There is a full list here. If you think you may qualify for an exemption, its important that you know how to claim the exemption. Some of the exemptions require that you file for a certificate at You will need this certificate before you file your 2014 tax return.

In order to do our due diligence, we will have you fill out an Affordable Care Act Worksheet. This will help us keep compliant as professionals, but it will also keep you compliant as taxpayers. As usual compliance is our number one goal in income taxes and it is no different with the Obamacare provisions that, in all reality, have made life for me and you more paperwork heavy.