Paying a Penalty for No Health Insurance in 2014-2016

By Joe Berg
Affordable Insurance Staff Writer

One of the most significant provisions of the federal Affordable Care Act (often referred to as “Obamacare”) is the requirement for each individual in the United States to have medical insurance. Starting Jan. 1, 2014, there is a financial penalty for those who do not have medical insurance, and it will be calculated on the tax return filed with the IRS each year.

When a tax return is filed for the 2014 calendar year, the filer must show proof of medical insurance or a tax penalty is imposed, calculated as follows:

For 2014

If one or more individuals in the household do not have health insurance, calculate the penalty as the greater of the following two tests:

  • Flat Dollar Amount: $95 for each adult family member (kids 18 and younger are $47.50), not to exceed a household total of $285.
  • Percent of Income Amount: 1 percent of annual household income (you may subtract exemptions and standard deductions). The law has a provision that the penalty amount calculated under this “Percent of Income” test will not exceed the actual cost of a “bronze level” plan in the state insurance marketplace. If 1 percent of a very high income (say $1 million) is $10,000, but the cost of a bronze level plan inside the exchange is $5,000 per year, the “Percent of Income” penalty would be capped at the $5,000.
An Example Scenario

James works for Acme Construction. His wife works for a dental office. They each take their employer-provided medical plan for themselves. However, they choose not to cover their two children on the medical insurance since they feel the premium cost is too expensive. Their combined household income is $65,000 after subtracting standard exemptions and deductions.

For 2014, this family would owe $95 under the flat dollar amount ($47.50 for each child) or $650 under the percent of income amount. Since the penalty is the greater of these two tests, they owe a $650 penalty for not having all family members covered by a health insurance plan.

For 2015

The same calculations apply as shown above except the dollar and percentage amounts are higher:

  • Flat Dollar Amount: $325 for each adult family member (kids 18 and younger are $162.50), not to exceed a household total of $975.
  • Percent of Income Amount: 2 percent of household income (you may subtract exemptions and standard deductions). The penalty amount calculated under this “Percent of Income” test will not exceed the actual cost of a “bronze level” plan in the state exchange. If 2 percent of a very high income (say $1 million) is $20,000 but the cost of a bronze level plan inside the exchange is $5,000 per year, the “Percent of Income” penalty would be capped at $5,000.

If our example family above maintains the same income level and exercises the same coverage choices, a penalty will again be triggered because the two children are not covered. The flat dollar amount would be $325 ($162.50 for each child), and the percent of income is $1,300 (2 percent of $65,000). They will owe a $1,300 penalty (as the greater of the two amounts) when they file their 2015 IRS tax return.

For 2016

The same calculations apply as shown above except the dollar and percentage amounts are higher:

  • Flat Dollar Amount: $695 for each adult family member (kids 18 and younger are $347.50), not to exceed a household total of $2,085.
  • Percent of Income Amount: 2.5 percent of household income (you may subtract exemptions and standard deductions). The penalty amount calculated under this “Percent of Income” test will not exceed the actual cost of a “bronze level” plan in the state exchange marketplace. If 2.5 percent of a very high income (say $1 million) is $25,000 but the cost of a bronze level plan inside the exchange is $5,000 per year, the “Percent of Income” penalty would be capped at the $5,000.

Using our same example family and remembering any family member without coverage triggers the penalty for the household, the flat dollar amount penalty is $695 (or $347.50 for each child) and the percent of income penalty is $1,625 (2.5 percent of $65,000). They would owe a $1,625 penalty (as the greater of the two amounts) when they file their 2016 IRS tax return.

Posted September 17, 2013. Find more individual insurance information or details about penalties.

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