Households Earning $75,000 or Less Paid Majority of Individual Mandate Penalties

July 21, 2021

Last month, the Supreme Court turned back a challenge to the Affordable Care Act (ACA), allowing to stand the Individual Mandate it created that penalizes taxpayers for not having proper health insurance and opening the way for President Biden and Congress to reimplement it. Internal Revenue Service (IRS) data from 2014 through 2018 shows that households making less than $75,000 faced most of the reported Individual Mandate penalties.

The intent of the Individual Mandate was to encourage households to purchase health insurance. The tax penalty created by it took effect in 2014 and phased in over the next two years until the 2017 Tax Cuts and Jobs Act (TCJA) permanently set the penalty to zero beginning in tax year 2019.  

The tax penalty households faced was the higher of a flat fee per adult and child not insured or a percentage of a taxpayer’s modified adjusted gross income (MAGI) that exceeded that year’s applicable tax filing threshold, capped at the national average cost of a Bronze plan.

IRS data indicates that over the five years the penalty was in effect, fewer households were subject to it each year. For example, in 2014, nearly 8 million tax returns (5.4 percent of returns) reported paying the penalty, but by 2018 that had dropped to under 4 million (2.5 percent of returns). But over this time, households that were subject to it faced a greater penalty on average.

Table 1. Total Dollar Amount of Affordable Care Act Individual Mandate Penalties Increased over Time Despite Drop in Returns Reporting Penalties
Year Flat Fee per Adult Flat Fee per Child Percentage of Income Total Returns Reporting Individual Mandate Penalty Total Amount of Reported Individual Mandate Penalty Average Reported Individual Mandate Penalty
2014 $95 $47.50 1.0% 7.97 million $1.69 million $212
2015 $325 $162.50 2.0% 6.67 million $3.08 million $462
2016 $695 $347.50 2.5% 4.95 million $3.63 million $732
2017 $695 $347.50 2.5% 4.65 million $3.67 million $788
2018 $695 $347.50 2.5% 3.80 million $3.17 million $835
2019 and onward $0 $0 0.0% n/a n/a n/a

Source: 26 U.S. Code Section §5000A; IRS SOI Tax States Historic Table 2 for 2014-2018.

For each year it was in effect, households with adjusted gross income (AGI) of less than $75,000 paid the majority of the reported penalties—ranging between 70.5 percent to 80.1 percent. Within this income group, households with AGI between $25,000 to $50,000 paid the highest share of penalties, around 35 percent. Households making $75,000 to $200,000 paid a share ranging from 16.6 percent to 23.0 percent, and households making more than $200,000 paid from 3.2 percent to 6.5 percent.

Table 2. Households with Incomes Less than $75,000 Paid Majority of Reported Affordable Care Act Individual Mandate Penalty Amounts
Year Portion of Individual Mandate Penalties Paid by Households Earning $75,000 or Less Portion of Individual Mandate Penalties Paid by Households Earning $75,000-$200,000 Portion of Individual Mandate Penalties Paid by Households Earning $200,000 or more
2014 75.9% 18.8% 5.4%
2015 76.8% 19.5% 3.8%
2016 80.1% 16.6% 3.2%
2017 75.6% 19.7% 4.7%
2018 70.5% 23.0% 6.5%

Source: IRS SOI Tax States Historic Table 2 for 2014-2018.

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Adjusted gross income (AGI) is a taxpayer’s total income minus certain “above-the-line” deductions. It is a broad measure that includes income from wages, salaries, interest, dividends, retirement income, Social Security benefits, capital gains, business, and other sources, and subtracts specific deductions.