Individual Health Coverage Mandate under the Affordable Care Act
The Affordable Care Act (ACA) requires that all individuals must have minimum health coverage in place or face tax penalties.
Individual Tax Penalty Guide
Your Result: You will likely have to pay a tax penalty on your tax return for tax years prior to 2019.
While none of the information here is meant to be construed as tax advice, based on what you have told us, you will likely have to pay a penalty on your tax return if filed for tax years prior to 2019. For tax years 2019 and forward the penalty has been removed. There may still be state penalties assessed for not having health insurance in your state so, you will need to check with your tax preparer about any possible state penalties. In addition, there are several exceptions so you should check with the IRS to determine which may apply to you in your situation. The amount you will have to pay depends on the number of people in your tax household (spouse and dependents) and/or your income. You can go here to see a visual calculation of a tax penalty estimate and calculate your penalty.
Income Calculation
The formula for calculating the amount of your tax penalty is pretty simple, although many factors could affect the final amount - including changes to the IRS codes. For the sake of simplicity, it is the amount of your gross income, minus your standard exemption (times 2 if filing as married) times 2.5%.
So if, for example, your total household income was $50,000. Then you would take that $50,000 in income, minus the standard exemption (which is currently $10,150 individual or $20,300 for married couples filing jointly) which comes to $39,850 ($29,700 if filing jointly) times 2.5%. In this case your annual tax penalty would be $398.50 ($297 if filing jointly)
Minimum Amount
However, if your income is below a certain threshold, you will either be subject to the minimum penalty or possibly no penalty at all if your income is very low. The minimum amount the penalty could be is at least $95 per adult per year and $47.50 per child dependent each year. So the minimum tax penalty a family of 3 would pay is the greater of the income calculation above or $237.50 ($95 x 2 plus $47.50 per child).
Planned Increases
In 2015 these penalties basically double. So the income calculation goes from 1% to 2% in 2015 and to 2.5% in 2016. The minimun amount, however, jumps to $325 per adult ($162.50 for children under age 18) in 2015 and $695 ($347.50 for children) in 2016. After that the minimum penalty amount will rise each year according to inflation (based on the actual cost of health insurance plans available in the marketplace).
In order to determine the exact amount of your penalty, you should consult your tax advisor. The good news is you can avoid the penalty for next year by getting coverage in place for 2015. The next open enrollment period where you can obtain individual coverage begins November 15, 2014 and lasts until February 15, 2015. If you need insurance right away, you can purchase a short term policy that can last until the end of the year (until your new policy can take effect) which can be very affordable. While you will not be able to avoid the tax penalty for this year, at least you would have coverage in place to avoid a large unexpected medical bill. Unfortunately, if you are already sick or have a serious injury or illness, these plans will not cover those medical expenses.
Income Calculation
The formula for calculating the amount of your tax penalty is pretty simple, although many factors could affect the final amount - including changes to the IRS codes. For the sake of simplicity, it is the amount of your gross income, minus your standard exemption (times 2 if filing as married) times 2.5%.
So if, for example, your total household income was $50,000. Then you would take that $50,000 in income, minus the standard exemption (which is currently $10,150 individual or $20,300 for married couples filing jointly) which comes to $39,850 ($29,700 if filing jointly) times 2.5%. In this case your annual tax penalty would be $398.50 ($297 if filing jointly)
Minimum Amount
However, if your income is below a certain threshold, you will either be subject to the minimum penalty or possibly no penalty at all if your income is very low. The minimum amount the penalty could be is at least $95 per adult per year and $47.50 per child dependent each year. So the minimum tax penalty a family of 3 would pay is the greater of the income calculation above or $237.50 ($95 x 2 plus $47.50 per child).
Planned Increases
In 2015 these penalties basically double. So the income calculation goes from 1% to 2% in 2015 and to 2.5% in 2016. The minimun amount, however, jumps to $325 per adult ($162.50 for children under age 18) in 2015 and $695 ($347.50 for children) in 2016. After that the minimum penalty amount will rise each year according to inflation (based on the actual cost of health insurance plans available in the marketplace).
In order to determine the exact amount of your penalty, you should consult your tax advisor. The good news is you can avoid the penalty for next year by getting coverage in place for 2015. The next open enrollment period where you can obtain individual coverage begins November 15, 2014 and lasts until February 15, 2015. If you need insurance right away, you can purchase a short term policy that can last until the end of the year (until your new policy can take effect) which can be very affordable. While you will not be able to avoid the tax penalty for this year, at least you would have coverage in place to avoid a large unexpected medical bill. Unfortunately, if you are already sick or have a serious injury or illness, these plans will not cover those medical expenses.