What Is a Shared Responsibility Payment?

Frustrated woman paying shared responsibility payment
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Definition

A shared responsibility payment is a tax penalty created by the Affordable Care Act (and in some cases by state laws). There are two types of shared responsibility payments: the employer shared responsibility payment and the individual shared responsibility payment.

The employer shared responsibility payment is a tax penalty imposed on businesses with more than 50 full-time equivalent employees if the businesses don't offer affordable health insurance benefits, or if the benefits offered do not provide minimum value. If any of the employees get subsidies (tax credits) to help them buy health insurance from a health insurance exchange, their employer gets a tax penalty.

The individual shared responsibility payment, created by the ACA’s individual mandate, was a tax penalty imposed on individual US citizens and legal residents who didn't have health insurance between January 1, 2014 and December 31, 2018. The penalty was eliminated after the end of 2018, under the terms of the Tax Cuts and Jobs Act that was enacted in late 2017. But people who were uninsured in 2018 still owe the penalty when they file their tax returns in 2019, and a few states have implemented their own individual mandates and associated penalties for 2019 and future years.

There are a variety of exemptions from the individual shared responsibility penalty. The IRS reported in 2017 that for the 2015 tax year, 12.7 million uninsured tax filers had claimed an exemption from the penalty, while 6.5 million had been subject to the penalty.

For the 2015 tax year, the average penalty paid by those 6.5 million filers was $470. But the penalty increased in 2016, and the IRS published preliminary data in 2017 showing an average penalty amount of $667 for people who were uninsured in 2016.

The penalty calculations remained unchanged for 2017 and 2018, although the maximum penalty amounts (which are based on the average cost of a bronze plan) grew each year as health insurance premiums increased.

There is no longer a penalty for being uninsured in 2019, unless you live in New Jersey, Massachusetts, or the District of Columbia. As of 2020, Vermont will also have a penalty for people who are uninsured and don't qualify for an exemption from the penalty (Massachusetts has had an individual mandate and penalty since 2006, but defered the penalty in favor of the federal penalty from 2014 to 2018; New Jersey, DC, and Vermont have implemented new individual mandates and penalties due to the elimination of the federal penalty).

Although the individual mandate penalty no longer applies at the federal level, nothing has changed about the employer mandate and its associated penalties. Large employers that don't offer affordable, minimum value coverage to their employees are still subject to penalties.

Background and Legal Challenges

The threat of the shared responsibility payment is meant to motivate employers to offer health insurance to their employees and motivate uninsured individuals to get health insurance.

The constitutionality of the individual mandate was challenged by Obamacare opponents arguing that the government doesn’t have the right to penalize its citizens for not buying something. But the mandate was upheld by the Supreme Court on June 28, 2012. The court found that the shared responsibility payment was actually a type of tax, and determined the individual mandate was constitutional because the government has the right to tax its citizens.

A few years later, in late 2017, the Tax Cuts and Jobs Act was enacted, calling for the eventual elimination of the individual mandate penalty. That triggered another lawsuit—Texas v. Azar—in which 20 states argued that without the individual mandate penalty, the entire ACA ought to be overturned. In mid-December 2018, a federal judge in Texas sided with those 20 states and ruled that the entire ACA is unconstitutional. The case is being appealed, and nothing has changed for the time being—the ACA remains the law of the land, and only the individual mandate penalty has been repealed. But Texas v. Azar is far from over, and highlights the importance of the nuances of the individual mandate penalty.

Learn More

If you think you'll owe a shared responsibility payment because you're uninsured, you can find out how much you'll owe in “How Much Is the Health Insurance Penalty for an Individual?” and "How Much Is the Health Insurance Penalty for Families?"

To avoid the shared responsibility payment by getting a health insurance exemption certificate, read "Can You Get a Health Insurance Exemption? How To Avoid the Shared Responsibility Payment." This is still applicable for the 2019 tax filing season, as people who were uninsured in 2018 will owe a penalty on their 2018 tax return if they're not eligible for an exemption.
If you're in DC, Massachusetts, or New Jersey (or Vermont as of 2020), you'll want to familiarize yourself with the local rules for the individual mandate penalty and how to obtain an exemption if you think you might be eligible for one. In general, the state-based individual mandates are using exemption rules that are similar to the ones the federal government used from 2014 to 2018, although there are some local differences.
To avoid the shared responsibility payment by getting health insurance, first read, “Before You Buy Health Insurance: What You Need to Know When Shopping for Health Insurance.”

Small business owners can learn about the small business healthcare tax credit by reading, “Small Business Health Tax Credit--FAQs for Small Business Owners“ and learn strategies for getting an employee health plan in “Health Insurance Options for Your Small Business.

Also Known As: health insurance penalty, health insurance penalty tax, individual mandate penalty, employer mandate penalty, shared responsibility penalty.

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