Tax Year 2018: The Last Year of the Obamacare Tax Penalty

One of the less talked about changes within tax reform is the end of the so-called Obamacare tax penalty. When President Trump signed the Tax Cuts and Jobs Act into action, the bill repealed the Affordable Care Act’s penalty by zeroing out the fines.

But before you assume you don’t have to worry about the penalty anymore, it’s important to know when that change begins.

The Obamacare tax penalty isn’t gone yet

Since 2015, individuals without adequate health care coverage throughout the year were subject to the tax penalty. The penalties were relatively small the first year, but they dramatically increased year after year.

For tax year 2017, the penalty was equal to a flat rate or a percentage rate, whichever is higher.

• The flat rate is $695 per adult, or $347.50 per child under 18, for a maximum of $2,085 per household.
• The percentage rate is 2.5 percent of your household income.

The same penalties are in place for tax year 2018 as well. That’s right – all individuals must carry health coverage that meets the ACA requirements or pay the tax penalty, even in 2018. The Obamacare tax penalty doesn’t go away until 2019.  

Of course, individuals can avoid the penalty if they qualify for one of the Affordable Care Act’s exemptions. For example, a person is exempt from the penalty if he or she isn’t required to file a tax return because their income is too low.

Exemptions of the Obamacare tax penalty

If an individual doesn’t have qualifying health insurance coverage in 2018, he or she still may not have to pay the Obamacare tax penalty. Many people qualify for an exemption and don’t owe a penalty if their income is below a certain level.

Other exemptions include:

• a gap in insurance coverage for less than three months in 2018
• being a member of a health care sharing ministry
• participating in a government program, such as Medicare
• membership of a federally recognized Indian tribe or eligible for services through an Indian care provider
• claiming the religious conscience exemption or a hardship exemption

How to avoid the Obamacare tax penalty in 2018

If an individual does not have adequate medical insurance for 2018, they can minimize or avoid the penalty by acquiring insurance as soon as possible. Those without coverage should visit Health Insurance Marketplace to sign up or call an independent insurance agent or company for further assistance. The sooner a person gets qualifying coverage, the less penalty they have to pay.

To claim the religious conscience exemption or hardship exemption, apply for an exemption certificate at the Health Insurance Marketplace. Almost all other exemptions can be claimed directly on a tax return. DIY tax programs, like TaxAct, help individuals easily file that information.