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. 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 or 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, is a tax penalty imposed on individual US citizens and legal residents who don’t have health insurance after December 31, 2013.

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, so average penalties are now larger.

Background

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.

The Future of the Shared Responsibility Penalty

Under the Trump Administration, and with Republicans in control of both chambers of Congress, the long-term future of the employer mandate and individual mandate are uncertain. They are two of the least-popular parts of the ACA, and Republican lawmakers have repeatedly said that they want to eliminate them. 

H.R.3762, which President Obama vetoed in early 2016, would also have retroactively eliminated the shared responsibility provisions. Republican lawmakers tried to replicate that legislation in 2017, but it failed to pass, despite a Republican majority in both chambers of Congress. A variety of bills were introduced in 2017 in an effort to repeal or change the ACA. All of them included the elimination of the individual and employer mandate penalties, but none of them ultimately had enough Republican support to pass.

Republican lawmakers have vowed to continue their efforts to repeal the ACA. If they are eventually able to pass comprehensive legislation relating to the ACA, there's a good chance that the shared responsibility provisions will be eliminated (and possibly replaced with something like a continuous coverage requirement, under which people could be subject to medical underwriting if they fail to maintain continuous coverage—that is an idea that gained traction with some Republican lawmakers in 2017).

 

But for the time being, the shared responsibility provisions are still in place, and unchanged under the Trump Administration. The IRS did continue to accept tax returns in 2017 that didn't answer the question about whether the filer had health insurance during the previous year (that was the same protocol the IRS used in prior years), but they will begin to reject those returns starting in 2018; all filers will have to indicate on their returns whether or not they had health insurance the prior year—leaving the question blank will no longer be allowed.

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."

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.

Sources:

HealthCare.gov. Read the Affordable Care Act.

Internal Revenue Service. ACA Information Center for Tax Professionals. IRS Statement on Health Care Reporting Requirement. October 2017.

Koskinen, John. Internal Revenue Service. Letter to Congress regarding 2016 tax filings related to Affordable Care Act provisions. January 9, 2017.

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