Tax Penalties for the Uninsured

Under the Affordable Care Act (also referred to as ObamaCare), health insurance in the United States is designed to be as affordable as ever. It is also now required by law – anyone who is uninsured for either part or all of a particular year will have to pay various penalties when they file their federal income taxes for that period of time. The tax penalties associated with not having health insurance will vary depending on the specifics of the situation.

Because health insurance is no longer an option, certain tax penalties will be assessed for those individuals who remain uninsured past the enrollment deadline in 2015. According to the Health website, there are two distinct ways in which penalties will be assessed to individuals and families. People will only need to pay the higher of the two amounts, not both.

The first is a flat penalty accounting for 2 percent of a person's yearly household income. However, this is not necessarily as severe as it may at first seem. Only the amount of a person's income that is above the tax-filing threshold will be used for the calculation of the penalty, which means that most people will only be paying 2 percent of about $10,000. The Health website indicates that the maximum penalty for an individual using this calculation is the average premium for "Bronze" health insurance plans under ObamaCare.

The second way to calculate the penalty for 2015 is a flat penalty of $325 per person for the entirety of 2015. This penalty is associated with family health insurance rather than individual health plans. If people under the age of 18 are living within a household and are claimed as dependents on a person's income tax form, the penalty associated with those individuals will be $162.50. The total maximum penalty for each family when calculated using this method is $975.

Minimum and Maximum Penalties by Year

According to the Affordable Care Act, the penalty for uninsured individuals is designed to increase every year. This is done to make it more expensive to be uninsured than it is to be insured, which ideally should entice people into looking into more affordable and higher quality policies in their state's marketplace.

The penalty associated with not having coverage in 2014 is the higher amount of 1 percent of a person's yearly household income or $95 per person for the entire year, for example. Children under the age of 18 years old will be associated with a $47.50 penalty. The penalties increase to 2 percent of a person's household income or $325 per person in 2015, as previously stated. Penalties increase further to 2.5 percent of a person's income or $695 per person in 2016. Though the actual amount of penalties beyond 2016 has not been officially released, it is expected that they will continue to rise alongside inflation for the foreseeable future.

Penalty Exemptions

As with any type of income tax related penalty, there are certain exemptions that a person can qualify for that will not require them to pay the fee on a yearly basis. If a person's income (or the total income of every member of a family) is below a certain level and insurance in general is deemed "unaffordable," for example, that household can qualify for an exemption from the aforementioned fees. Specific qualification levels for those penalty exemptions will vary depending on the state a person lives in. As a result, all relevant information can be found by visiting the official website of the Health Insurance Marketplace in that state.

When it comes to the income tax penalty associated with being uninsured under the Affordable Care Act, the word "penalty" is probably something of a misnomer. While it is true that you will have to pay money for being uninsured, it is probably best to look at this fee as more of an incentive to research and purchase high-quality health care in your area than anything else. Health insurance options naturally vary by state. Types of health insurance available in one state may not be available in another, for example.