Your IRS filing status takes on added significance due to the Affordable Care Act. How you file your tax return, in many cases, will directly affect how your Obamacare fine is calculated.
There are minimum income levels, for each filing status, which trigger the requirement for filing a tax return. These same filing thresholds also play a role for determining an Obamacare penalty, if one is applicable.
Filing Status & The ACA Fine
The most popular exemption for avoiding a so-called Share Responsibility Payment applies to those earning little or no income. In other words, if you are not required to file a tax return then you are not required to pay an Obamacare fine. That’s pretty simple!
Most people need to file and the filing threshold differs depending on your IRS status…
Different Ways to File a Return
The vast majority of tax payers will have one of the following tax statuses:
- Single
- Head of Household
- Married – Filing Jointly
- Married – Filing Separately
Some people will qualify for the following which is a temporary status:
- Qualifying Widow/Widower
Check out the IRS’s filing thresholds that are linked to each status.
Our calculators only allow you to select Single, Head of Household or Married. If you are unsure which status to choose, regardless of Obamacare and how the fine applies, send us an email.
Threshold & ACA Fine Calculation
Those required to pay a penalty for not having health insurance face either a flat rate amount or an amount based on a percentage of income (MAGI).
It’s at this point when your filing status can be important for figuring out a possible Obamacare fine. This is especially true if your income exceeds a certain amount.
Filing Threshold Gets Deducted
If you end up paying an ACA fine, based on a percentage of your income, then a higher IRS filing threshold actually works to your advantage to some extent.
Unlike when you must pay a flat rate penalty, an Obamacare fine that’s based on a percentage of MAGI is calculated by first deducting your filing threshold.
It’s confusing but our calculators do the work for you!
Do Not Play with Filing Status
Some will be tempted to manipulate their filing status, to their advantage, in order to reduce their Obamacare penalty. We don’t recommend that you do this.
Most filers will have limited options. Some will have no wiggle room. Just chose the accurate status based on your personal situation.
It isn’t worth it to try to bend the rules because the Internal Revenue Service has advanced techniques for screening individuals with incorrect filing statuses.
More Details For Single Filers
There are really only 2 possible options for single people. If you can legitimately elect to file as Head of Household you will increase your threshold compared to the more popular Single filing status.
The drawback to this is if you claim dependents who are uninsured. In that case, Head of Household can end up backfiring on you since you would likely owe a higher Obamacare fine as a result.
It really depends on your particular family situation. Weighing the pros and cons of Head of Household status in regards to Obamacare and the penalty is key to making the right tax filing decision.
Using our Obamacare Fine Calculator to view both results, single and HOH, can help you decide!
More Details For Married Couples
For married couples, the most popular filing status is Married – Filing Jointly. Alternatively, you would indicate you are married but file a separate return called Married – Filing Separately.
There may be several reasons why a married couple would file separately that we won’t go into here. In any case, Obamacare creates another factor when considering whether to file a return separately or not.
Consider that the IRS filing threshold is significantly different when you compare the amounts between Married Filing Joint Return and Married Filing Separate Return.
This means, all things equal, your Obamacare fine could be reduced by filing jointly. This is especially true if only one spouse works and earns a decent income. Children can be another factor.
Being married means you have the option to examine both filing situations as they apply to an Affordable Care Act penalty.