What will your Obamacare penalty cost? You may have heard that, under Obamacare, everyone is required to have health insurance—or pay a penalty. This is technically called the individual mandate, but it doesn’t apply to everyone. Use this guide to determine if you’re exempt from penalty, what the tax penalty will cost you, and how the tax penalty will be enforced—and use this information to weigh your options when making decisions about getting insured.
Who Is Exempt From the Individual Mandate?
First, let’s take a quick quiz. Are you:
- …a member of a religion that is known for objecting to insurance (including Medicare and Social Security)?
- …a member of a known healthcare sharing ministry?
- … American Indian?
- …an individual/family whose household income falls below the tax threshold (so, you don’t file a federal tax return)?
- …an individual who has been without healthcare coverage for less than three consecutive months?
- …suffering from certified hardship that prevents you from enrolling in coverage?
- …an individual/family with a household income that puts the lowest cost insurance plan at greater than 8% of your income?
- …incarcerated, and not awaiting the disposition of charges against you?
- …an undocumented immigrant, U.S. National, or alien?
- …a citizen who has been abroad for more than one year?
Did you answer yes to any of these questions?
If so, you’re exempt from the individual mandate! Depending on your exemption, you may need to file for a certificate of exemption through your marketplace. If you’re exempt, you essentially do not have to worry about the individual mandate or the penalty for noncompliance.
How Much Is the Tax Penalty?
Those of you who didn’t fall into one of the exemption categories above will need to buy health insurance before the deadline of March 31, 2014, or pay the penalty. The tax penalty will be phased in starting in 2014 and will be in full effect by 2016.
The government calculates your penalty in one of two ways: the first way is to charge you a fee per adult and another fee per child, but no more than a set total per family; the second way is to charge you a percentage of your taxable income. You don’t get to pick—your penalty will be the higher of the two sums.
Determining your “taxable income” makes things tricky. You’ll have to calculate how much your income (that’s your adjusted gross income plus any tax-exempt interest and any excluded income earned abroad) exceeds the sum of personal exemptions and standard deductions, which was $10,000 for singles and $20,000 for married couples in 2013. So, if you are single with no dependents and make $40,000 in 2014, you’ll be taxed 1 percent on $30,000, or $300 total. Likewise, a married couple that makes $80,000 will be taxed 1 percent on $60,000, or $600.
By 2016, you will have to pay the greater of $695/adult and $347.50/child (no more than $2085 per family) or 2.5% of your family income. Below is a fee table starting from 2014.
How Will The Tax Penalty Be Enforced?
The easy answer is that the government will enforce the penalty through your tax filings. If you choose to take the penalty, but you’re unable to afford the payment when tax time comes, the IRS will work out a solution for you. In regards to the individual mandate tax penalty, the IRS cannot impose a lien, levy, or send what you owe to collections.
Tried finding insurance, but running into glitches on the government marketplace sites?
Try an established health insurance marketplace site to see your complete range of options. We’ve partnered with Health Sherpa to bring you an ultra user-friendly health insurance shopping tool that allows you to enroll within minutes.
Tax form photo courtesy of Shutterstock.