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Financial Planning > Tax Planning

Fewer Early Tax Filers Pay ACA Penalty on Uninsured

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The number of taxpayers who pay the Affordable Care Act penalty on the uninsured for 2016 may be 33% lower than the number who paid the penalty for 2015.

The taxpayers who do have to pay the ACA penalty may owe an average of about 80% more per return than they owed for 2015.

— (Related on ThinkAdvisor: ACA definitions: Enrollment period basics)

The office of the Treasury Inspector General for Tax Administration — an agency that keeps track of the Internal Revenue Service — put an update on the ACA penalty payment program in a new report on early results for the 2017 tax filing season.

The 2017 IRS filing season for personal tax returns started Jan. 23 and is set to end April 18. The returns coming in now cover the 2016 tax year.

The new TIGTA report includes return filing data for the period from Jan. 23 through March 2. That’s the first 38 days of the 85-day filing season. Many taxpayers file their returns in April. Some get extensions and file returns later. Some never file returns.

Predictions about a tax season based on the early filers’ returns can be misleading, because the early filers might be better organized than other taxpayers, and they might be more likely to expect to get cash back from the IRS.

TIGTA says the IRS had received a total of 61 million personal returns for the 2016 tax year by March 2. 

A year ago, TIGTA released a similar report, for the 2016 tax filing season and the 2015 tax year. That report included data from 2015 personal returns filed from Jan. 19, 2016, through March 4, 2016. By March 4, 2016, the IRS had received 66.7 million personal returns for 2015.

When Democrats in Congress wrote the Affordable Care Act, they included an “individual shared responsibility” penalty in an effort to push healthy people to get health coverage. The provision requires most people to have “minimum essential coverage,” or what the government classifies as solid health coverage, for much of the year or else pay a penalty.

To calculate the penalty payment, a taxpayer has to multiply the income affected by the penalty by a penalty percentage. ACA drafters designed the penalty percentage to phase in from the 2014 tax year through the 2016 tax year, then level off. The penalty percentage increased to 2.5% for 2016, from 2% in 2015, and from 1% in 2014.

TIGTA found evidence that the kinds of consumers who file their tax returns early may have figured out how to avoid paying the individual shared responsibility penalty.

The number of early filers who reported owing the penalty dropped to 1.8 million for the 2016 tax year. That’s down from 2.7 million for 2015 and 3.7 million for 2014.

Partly because of the increase in the penalty percentage, the average penalty amount owed increased to $667 per return for 2016. The 2016 average is up from $370 for 2015 and $177 for 2014.

TIGTA also gave early information about the tax returns of people who used ACA exchange plan coverage subsidies in 2016.

Consumers who get their health coverage through or the other ACA exchange programs are supposed to use IRS Form 8962 to tell the IRS how much advance premium tax credit subsidy help they received while the tax year was still underway.

After the tax year is over, subsidy users are supposed to find out whether they got too much help or too little. Subsidy users who got too much help may have to pay some of it back. Subsidy users who received too little help may get extra cash from the IRS.

About 1.7 million early filers reported using the ACA exchange plan premium subsidy program in 2016. Those filers received a total of $6.1 billion in subsidy help in 2016, or about $3,650 in subsidy help per return.

A year ago, TIGTA was reporting that 1.4 million early filers had reported receiving a total of $4.2 billion in ACA premium subsidy help in 2015, or an average of about $3,000 in subsidy help per return.

— Read ACA definitions: Enrollment period basics on ThinkAdvisor.


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