Guides / Life Events

The Affordable Care Act: What It Means for You

Well over a decade after passage, the ACA still shapes how individuals buy coverage and how businesses structure health benefits. Here's a plain-language rundown of the pieces that still matter today.

Health insurance marketplaces

Health Insurance Marketplaces, sometimes called exchanges, let individuals and families without employer coverage shop for and purchase health insurance directly. Some are run by individual states, and others are run by the federal government. Coverage purchased through a marketplace takes effect January 1 of the plan year, and eligible enrollees may qualify for an advance Premium Tax Credit that lowers the monthly premium immediately rather than waiting until tax filing.

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The individual mandate today

From 2014 through 2018, the ACA required most U.S. citizens and legal residents to carry minimum essential coverage or pay a penalty when filing taxes. That federal penalty was reduced to zero starting in 2019, effectively eliminating the federal individual mandate. However, California, Massachusetts, New Jersey, Rhode Island, Vermont, and the District of Columbia have each enacted their own state-level individual mandates, so residents of those jurisdictions should confirm their state's current requirement before assuming no mandate applies.

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Premium tax credits

Taxpayers with household income between 133 and 400 percent of the federal poverty level may qualify for a refundable premium tax credit that caps health insurance costs at a set percentage of income. The credit amount is calculated on a sliding scale based on family size and income, and married couples must file a joint return to qualify.

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FSAs, HSAs, and medical expense deductions

Flexible Spending Account contributions are capped annually and indexed for inflation each year, so it's worth checking the current-year limit before your open enrollment election. Distributions from HSAs and Archer MSAs used for over-the-counter medicine without a prescription are subject to a 20 percent tax, though this doesn't apply to insulin, medical devices, eyeglasses, contact lenses, copays, or deductibles. The itemized deduction threshold for medical expenses, 7.5 percent of adjusted gross income, was made permanent in the December 2020 pandemic relief legislation. Employer-provided coverage for adult children through age 26 continues to be excluded from taxable income.

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Coverage if you are self-employed

If you run a business without employees, you're treated as self-employed rather than an employer, even if you engage independent contractors, and you can shop for individual coverage through the Marketplace. Insurers cannot deny you coverage or charge you more because of a pre-existing condition, and you may be able to move an existing individually purchased plan onto the Marketplace to see if you qualify for a premium tax credit.

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Small business rules and tax credits

Employers with 50 or fewer full-time equivalent employees are considered small businesses under the ACA and can shop through the SHOP Marketplace, which is also open to nonprofits. Small employers with fewer than 25 full-time equivalent employees, paying average wages below a threshold that's indexed for inflation, may qualify for the Small Business Health Care Tax Credit if they cover at least half the premium cost. The credit is worth up to 50 percent of the employer's contribution toward premiums (up to 35 percent for tax-exempt employers), and it's largest for the smallest employers, typically fewer than 10 employees with modest average pay.

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Rules for larger employers

Applicable Large Employers, generally those with 50 or more full-time equivalent employees, can face an Employer Shared Responsibility Payment (sometimes called the "pay or play" penalty) if they don't offer minimum essential coverage to enough full-time employees and at least one employee receives a premium tax credit through the Marketplace. The payment calculation depends on whether the employer offered no coverage at all or offered coverage that was unaffordable or insufficient for specific employees, and the per-employee dollar amounts are indexed for inflation each year. Employers subject to these rules also carry annual information reporting obligations to both employees and the IRS.

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Provisions since repealed

Not every ACA-related tax survived. The medical device excise tax, the annual fee on health insurance providers, and the excise tax on high-cost employer-sponsored coverage, often called the "Cadillac tax," were all repealed under the Further Consolidated Appropriations Act of 2020. A separate 10 percent excise tax on indoor tanning services, unrelated to these repeals, remains in effect for most commercial tanning services.

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Frequently asked questions

Is there still a federal penalty for not having health insurance?

No. The federal individual mandate penalty was reduced to zero starting in 2019. A handful of states, including California, Massachusetts, New Jersey, Rhode Island, and Vermont, along with the District of Columbia, still enforce their own state-level mandates.

Can I still get a premium tax credit if I buy insurance through the Marketplace?

Yes, if your household income falls within the qualifying range, generally 133 to 400 percent of the federal poverty level, and you meet the other eligibility requirements, including filing jointly if married.

Do small businesses have to offer health insurance under the ACA?

No. Only Applicable Large Employers, generally those with 50 or more full-time equivalent employees, face a potential penalty for not offering coverage. Smaller employers are exempt from that penalty, though some may qualify for a tax credit if they choose to offer coverage.

This guide is for general informational purposes only and is not tax, legal, financial, or investment advice. Every business situation is different, so consult a licensed professional before making decisions based on this content.