What Is the Obamacare Health Insurance Penalty?
Find out the Obamacare penalty for going without health insurance and how much it’s going up in future years.
Laura Adams, MBA
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What Is the Obamacare Health Insurance Penalty?
Whenever I talk to friends or the media about the Affordable Care Act, known as Obamacare, the one aspect of the law that I often receive questions about is the penalty for not having health insurance. It applies across the board to just about every American.
In this episode I’ll cover what you should know about the tax penalty for being uninsured. You’ll learn how to calculate the Obamacare penalty, what the increases will be in future years, and who gets a break from having to pay it..
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What Is the Obamacare Health Insurance Penalty?
The Affordable Care Act, which was signed into law in 2010, requires every American to have health insurance with minimum essential coverage starting in 2014. It doesn’t matter if you’re employed, self-employed, unemployed, a child, an adult, or which state you live in.
If you have dependents, you’re responsible for getting them coverage as well. There are some penalty exceptions, which I’ll cover in a moment.
Many low- and middle-income Americans qualify for a health subsidy, which cuts the cost of premiums, depending on income and family size. The government pays a health subsidy directly to the insurance company, so individuals just get billed for the reduced monthly amount.
How Much Is the Obamacare Penalty for 2014?
The Obamacare penalty is actually a tax that will be collected by the IRS. And just like most taxes, it’s a little complicated.
The fee for not having health insurance is calculated in 2 ways: a percentage of income and a flat fee. You have to pay whichever is higher.
Let’s start with the penalty for 2014. If you don’t have coverage, you’ll pay one of these amounts when you file your federal tax return:
- Percentage calculation: 1% of annual household income above the threshold for your tax filing status.
The threshold part means that you don’t get penalized on the first $10,150 of income if you’re a single or $20,300 if you’re married filing taxes jointly—just your income above that amount. This percentage calculation method has a maximum cap set at $2,448 per individual and $12,240 for a family with 5 or more members.
- Flat rate calculation: $95 per adult or $47.50 per child under age 18 per year, up to a maximum amount of $285 for a family.
Obamacare Penalty Examples
Here are a couple of examples to help you understand what you might owe for being without health insurance in 2014:
Penalty Example #1: Single person with no dependents making $45,000 per year
Let’s say Sarah is unmarried, has no dependents, makes $45,000 a year, and doesn’t have health insurance. For the percentage calculation you subtract her filing threshold from her gross income, or $45,000 minus $10,150. The remaining amount of $34,850 is multiplied by 1%, which equals $348.50.
Then you compare it to Sarah’s flat-rate penalty, which is $95. Since the percentage calculation of $348.50 is higher, that’s what she’ll have to pay when she files her 2014 tax return in April of 2015.
Penalty Example #2: Family with 2 children making $100,000 per year
John and Pat file taxes as a joint married couple, have 2 children under the age of 18, earn $100,000 in household income, and don’t have health insurance for anyone in their family. Their percentage calculation is $100,000 minus the filing threshold of $20,300, multiplied by 1%, which equals $797.
The family’s flat-rate penalty is $95 per adult plus $47.50 per child, or $285. Since the percentage calculation is higher, they must pay a penalty of $797 at tax time.
How Much Is the Obamacare Penalty for 2015?
While these penalty amounts might seem low compared to the annual cost of purchasing health insurance, the Obamacare penalty is going up significantly in future years. If you don’t have health insurance in 2015, you’ll pay the higher of the following 2 calculations:
- 2% of annual household income above the threshold for your tax filing status.
- $325 per adult or $162.50 per child under age 18 per year, up to a maximum amount of $975 for a family.
So the percentage penalty rates doubles and the flat rate more than triples for 2015!
In 2016 the penalty rate goes up even further to 2.5% of income and the flat rate is $695 per person. After that, it will be adjusted for inflation.
See also: Ways You Save Money by Getting Fit (Video)
Who Is Exempt from the Obamacare Health Insurance Penalty?
I mentioned that the penalty for not having health insurance doesn’t apply to some Americans. Here are exemptions and hardships that allow you to legally avoid it.
You had a short lapse of coverage, which was less than 3 consecutive months during the year.
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Your income is less than the tax filing threshold.
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You have options that are considered unaffordable because the least expensive plan costs more than 8% of your annual household income.
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You have low income, but are not eligible for Medicaid in the state where you live.
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You’re not a legal U.S. resident.
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You’re a member of a health care sharing ministry or a religious sect that is opposed to receiving health insurance benefits, including Medicare and Social Security.
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You’re a member of a federally-recognized Indian tribe.
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You’re incarcerated.
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You weren’t able to sign up for health insurance due to a hardship, including homelessness, eviction, foreclosure, domestic violence, death of a close family member, and unpaid medical bills.
See also: Obamacare Penalty Calculator to find your penalty for 2014 and 2015
Should You Buy Health Insurance?
Even if the penalty is more affordable than buying health insurance, skipping the coverage is a huge mistake. Paying the penalty is money that you’ll never see again. And if you get sick or injured and don’t have insurance, you risk getting a huge medical bill that could devastate your finances.
You can buy health insurance in a variety of places, such as from a local insurance agent, an online service, or through a state or federal health marketplace.
One final quick and dirty tip: Before you buy health insurance, make sure that it qualifies as minimum essential coverage under Obamacare. Otherwise you can have sub-par coverage and still be subject to the healthcare penalty.
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.