Effective January 1, 2014, all individuals must obtain minimum essential coverage or pay a tax. For individuals eligible to enroll in an employer sponsored plan with a plan year beginning in 2013 and ending in 2014, penalty relief applied until the beginning of the plan year in 2014. (For example, an employee eligible to enroll in a plan with a plan year beginning October 1, 2013 and ending on September 30, 2014 did not owe a penalty from January 1, 2014 through September 30, 2014, if the employee enrolled in coverage effective at the beginning of the October 1, 2014 plan year.
The Individual Mandate penalty applies to each month during which an individual does not have minimum essential coverage. The penalty for any month is 1/12th the greater of a flat dollar amount ($95 in 2014 phased up to $695 in 2017, indexed annually with the rate of general inflation) or a specified percentage of household income (1% in 2014 phased up to 2.5% in 2017, indexed annually with the rate of general inflation). Penalties are 50% for children under age 18. The maximum family penalty is three times the penalty that applies for adults. The penalty is capped at the amount the individual or family would have to pay for the average cost of bronze level Exchange (Marketplace) coverage.
Exemptions are available for individuals who cannot afford employer coverage (e.g., if required contributions for the lowest-cost employer option exceed 8% of the individual's household income), who are low-income taxpayers (e.g. individuals who are not required to file a Federal income tax return), who have coverage gaps of less than three months, who are members of Indian tribes or who are determined to have suffered a hardship. The flat dollar amounts are indexed to CPI-U. Tax credits are available for certain individuals with family income up to 400% of the federal poverty level. In February 2017, the IRS announced it would not automatically reject tax returns that did not indicate coverage. However, the Individual Mandate remains in force until changed by Congress, which means that taxpayers are required to follow the law and pay any penalty. When the IRS has questions about a tax return, an individual may receive follow-up questions or correspondence after the filing process is completed.