Does a tax filer have to pay a "no health insurance" penalty for an adult sibling tax dependent?

Question

My 28 year old sister lives with me. She doesn't work, and she goes to a local community college to study English for adults (the tuition completely FREE of charge). I fully provide for her.

She has a green card, but she's not eligible for a Medicaid (since she's been in the US for less than 5 years). She makes no money, so presumably she is exempt from getting health insurance (no income waiver)

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As far as I understand, my options are the following:

1. Claim her as my dependent, and buy her insurance. I'll get additional $1,000 in tax return (for having her as my dependent), and spend ~$2,000 on her insurance. My end of year balance would be MINUS $1,000

2. Claim her as my dependent, and NOT to buy her insurance. I'll get additional $1,000 in tax return (for having her as my dependent), and pay $1,500 no insurance penalty. My end of year balance would be MINUS $500 (slightly better)

3. NOT to claim her as my dependent. No additional tax return (since she is NOT my dependent), but also no penalty. My end of year balance would be $0

So the best strategy for me is NOT to claim her as my dependent, isn't it?

Essentially Obamacare act is forcing me NOT to claim my sister as my dependent (although I provide > 51% for her).

So, as a big sister I can provide for her, but NOT claim her as my dependent. Do I understand everything correctly?

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As a side note, in order to claim somebody as a dependent, a tax filer has to cover only 51% of a dependent's annual expenses, not 100%. This logic does not jive with the idea that the minute I claim her as my dependent, I also become responsible for all her health insurance

Answer 1

3) NOT to claim her as my dependent. No additional tax return (since she is NOT my dependent), but also no penalty. My end of year balance would be $0

No. Not claiming her as a dependent does not save you from being responsible for her penalty. You are responsible for her penalty if she is your dependent (i.e. she meets the conditions for being your dependent), regardless of whether you claim her on your tax return or not. If you have the option of claiming her or not, then she is your dependent, and you are responsible for her penalty.

26 CFR 1.5000A-1(c)(2)(i):

For a month when a nonexempt individual does not have minimum essential coverage, if the nonexempt individual is a dependent (as defined in section 152) of another individual for the other individual's taxable year including that month, the other individual is liable for the shared responsibility payment attributable to the dependent's lack of coverage. An individual is a dependent of a taxpayer for a taxable year if the individual satisfies the definition of dependent under section 152, regardless of whether the taxpayer claims the individual as a dependent on a Federal income tax return for the taxable year. [...]

Form 1040 instructions, Line 61:

[...]

If you had qualifying health care coverage (called minimum essential coverage) for every month of 2015 for yourself, your spouse (if filing jointly), and anyone you can or do claim as a dependent, check the box on this line and leave the entry space blank.

Otherwise, do not check the box on this line. If you, your spouse (if filing jointly), or someone you can or do claim as a dependent didn’t have coverage for each month of 2015 you must either claim a coverage exemption on Form 8965 or report a shared responsibility payment on line 61. [...]

So you cannot check the box and must report exemptions for your sister, or report a shared responsibility payment.

Form 8965 instructions, Definitions, "Tax household":

For purposes of Form 8965, your tax household generally includes you, your spouse (if filing a joint return), and any individual you claim as a dependent on your tax return. It also generally includes each individual you can, but don't, claim as a dependent on your tax return. [...]

Your sister is part of your tax household regardless of whether you claim her, and you must compute her shared responsibility payment for any months she did not have insurance and did not qualify for an exemption.

Answer 2

Essentially obamacare act is forcing me NOT to claim my sister as my dependent (although I provide > 51% for her).

No, that's not what it's doing. It's forcing you (or her) to get insurance.

So, as a big sister I can provide for her, but NOT claim her as my dependent. Do I understand everything correctly?

The exemption (that gave you that $1K back) can only be claimed by you, she cannot claim it. So by not claiming her you're giving that up. Her medical bills will probably be on you as well, so it would be in your best interest to have her insured.

If you want to dump her on the taxpayer in case of a medical emergency - then yes, it will cost you the tax benefit of the additional exemption and the HOH deduction (depending on your tax rates, probably a couple of thousands of dollars).

Either way you'll pay.