What the Individual Mandate Repeal Means for the Average American

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No one likes taxes, and penalties are even harsher when you have to pay them. One of the most hated tax penalties in recent years has been the shared responsibility payment under the controversial Patient Protection and Affordable Care Act. By imposing penalties on many of those who chose not to obtain adequate health insurance coverage, Obamacare sought to spur as many people as possible to participate.

Just last month, lawmakers voted to repeal the shared responsibility payment provisions of Obamacare as part of tax reform. The result will be for the penalty, which hit millions of taxpayers and cost billions of dollars, to disappear beginning in the 2018 tax year. Although only a small portion of Americans had to pay the penalty, the amount had already climbed substantially from previous years, and the numbers are likely to rise further once more recent data comes in.

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How typical Americans dealt with Obamacare penalties in 2015

2015 is the most recent year for which Obamacare penalty information is available, and it paints a picture that shows the provision's limited scope but rising impact. Almost 6.7 million tax returns included a shared responsibility payment in 2015, which was between 4% and 5% of the roughly 150 million returns filed that year. The amount paid under the provision came to $3.11 billion. That's an average of $465 per taxpayer that had to pay the penalty.

The first thing that's noteworthy about the penalty figure is that it's considerably higher than what taxpayers paid in 2014. That year, more than 8 million taxpayers were subject to the penalty, but they paid an average of just $210 in penalties. That's largely because the penalties were substantially different across the two years. For 2014, the Obamacare penalty was calculated at the rate of $95 per adult and $47.50 per child, with a family maximum of $285. In 2015, those numbers more than tripled to $325, $162.50, and $975 respectively.

Moreover, penalties were higher for those with relatively high incomes. Under the penalty provisions, an alternative calculation applies that imposed a 2% penalty on income above the tax filing limit, which has been fairly close to $10,000 for single filers and $20,000 for joint filers. That 2% was double the penalty for 2014.

Were Obamacare penalties even higher after 2015?

It's likely that when the numbers come in for 2016, they'll show even greater penalties. Obamacare called for another dramatic increase in the penalty rates, with adults owning $695, children $347.50, and a family maximum of $2,085. The income-based calculation rate rose to 2.5% over the threshold income level. Similar penalties apply for the 2017 tax year as well.

Those penalty amounts are more than double the numbers that applied in 2015. 2015's data shows that amounts actually paid in penalties didn't go up in line with the rate boost, as fewer people left themselves in position to owe the penalty. Nevertheless, it's reasonable to think that a doubling of penalties in 2016 could lead typical amounts that taxpayers subject to the provision would pay much closer to the $1,000 level.

Good news on Obamacare penalties

The good news for those who've had to make shared responsibility payments is that 2017 will be the last tax year where they'll apply. The tax reform bill eliminated the individual mandate beginning in 2018.

Nevertheless, millions of taxpayers paid Obamacare penalties in 2016, and millions more will likely owe one more set of shared responsibility payments in 2017. For them, tax reform will represent an immediate savings on a tax penalty that they already resented having to pay.

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