The Tax Cuts and Jobs Act brought about quite a few changes that went into effect in 2018, but several tax law updates weren’t slated to go into effect until the 2019 tax year. One of the biggest changes in 2019 is the federal level elimination of the individual mandate penalty, also called the Shared Responsibility payment, introduced under the Affordable Care Act. 

What Is the Individual Mandate?

The 2010 Affordable Care Act, commonly called Obamacare, requires Americans to have some form of health insurance, unless they qualify for one of the exemptions below:

  • Individuals who are incarcerated
  • Individuals whose health insurance would be more than 8 percent of their income
  • Individuals whose religion forbids them from having health insurance
  • Members of Native American Tribes
  • Undocumented immigrants
  • Families who are not required to file a tax return due to low income

All other U.S. Citizens and permanent residents were required to have health insurance. Tax penalties for those without coverage started in 2014 with a three year phase in period. Taxpayers who did not have coverage for themselves or their dependents were penalized with a fee to be filed with their year-end tax returns. 

The Federal Elimination of the Individual Mandate

2018 was the last year the individual mandate was required; for the tax year 2019, taxpayers will not have to pay a penalty on their federal tax return for not having health insurance coverage for 2019. 

The Individual Mandate at the State Level

While the Tax Cuts and Jobs Act eliminated the individual mandate on the federal level, there are still some states that require taxpayers to have health insurance. As tax preparers and taxpayers prepare to file their 2019 return in the 2020 tax season, they’ll need to be aware of any legislation their state has passed regarding the individual mandate. 

As of September 1st, the following states have imposed an individual mandate for their taxpayers:

  • New Jersey – A state level individual mandate and penalty went into effect for tax year 2019 to replace the federal individual mandate. The state penalty was made to mirror the federal penalty, with the calculation based on the average cost of a bronze plan in New Jersey. 
  • Washington D.C. – Similar to New Jersey, a district level individual mandate and penalty went into effect in tax year 2019 to replace the federal individual mandate. The district penalty was also made to mirror the federal penalty, with the calculation based on the average cost of a bronze plan in Washington D.C. 
  • Massachusetts – An individual mandate and penalty for not having health insurance has been in effect in Massachusetts since 2006. During the years the Affordable Care Act mandated a federal penalty, Massachusetts taxpayers did not have to pay the state penalty. Now that the federal penalty has been eliminated, Massachusetts taxpayers who did not have health insurance during tax year 2019 will have to pay a state level penalty. This penalty only applies to adults. 

As of September 1st, the following states have passed legislation that will apply in future tax years:

  • Vermont – Vermont has an individual mandate and penalty slated to take effect for tax year 2020. No individual mandate is set for tax year 2019. 
  • Rhode Island – The state enacted an individual mandate and penalty on July 5th, 2019. Similar to New Jersey and Washington D.C., the penalty is modeled after the federal penalty. The individual mandate will go into effect for the 2020 tax year. 
  • California – The individual mandate and penalty for Californians will also start in tax year 2020 and will mirror the federal individual mandate and penalty. 

While the federal individual mandate is not applicable in the 2019 tax year (or any years going forward), it’s important for tax preparers and taxpayers to note if they reside in a state that has a state level mandate in 2019, or if they live in a state that will have a state level mandate in 2020. 

Like many aspects of the Tax Cuts and Jobs Act, the removal of the individual mandate and penalty at the federal level is not cut and dry. It’s important for preparers and taxpayers alike to know the changes that went into effect in 2018, as well as any new changes that will have to be taken into consideration for tax year 2019. While it seems like the 2020 tax season is still far away, being aware of these changes now will help preparers provide the best and most accurate service for their clients. Surgent offer a variety of courses on all aspects of tax reform to prepare accounting professionals for the 2020 tax season. For complete access to the fully available catalog of CPE for CPAs, including all premium content, and tax reform courses, Surgent offers an Unlimited Plus CPE package

Megan Bierwirth graduated from the University of Kentucky in 2013 with a Bachelor’s of Science in Accounting and passed the CPA exam within 6 months of graduation. She worked in both public accounting and industry while becoming a CPA and now runs a virtual bookkeeping company focused on preventive, integrative and complementary medicine professionals.

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