09 Sep 2016

The Obamacare Tax Penalty

The Obamacare Tax Penalty

When the Affordable Care Act was enacted, plenty of Americans didn’t have any proper health insurance. This was mainly due to cost. The ACA’s answer to that problem was to enable the use of government subsidies which make some health insurance plans more affordable for qualified applicants. However, some Americans simply chose not to have any health insurance at all. To discourage these people from not getting insurance, the ACA also imposed a tax penalty. The Obamacare tax penalty helps insure that everyone gets health insurance no matter what.

Who Pays the Penalty?

The tax penalty may sometimes be called a “fine” or a “tax mandate.” Either way, it’s the fee you owe if for more than 2 months you, your spouse, and your tax dependents don’t have any health insurance. A proper insurance plan offers the minimum essential coverage as listed by the ACA.

If you have an insurance plan that’s about to end, you have to get a new plan or renew the old plan so that you are never without health insurance within the calendar year. That means you need to plan ahead, as some insurance plans begin coverage only after 45 days. If you don’t obtain insurance and go at least one month without coverage, you’ll pay the penalty when you file your federal tax return.

However, it may be possible that you’re exempted from this requirement to get proper insurance coverage. You can find out if you qualify for this health coverage exemption by going online. Some exemptions may include particular life events such as getting married or having a baby.

How Much is the Penalty?

The amount you pay can be calculated as a percentage of your income, or as a definite amount per person. You pay the higher amount. The maximum amount as a percentage of income is the national price average of a Bronze plan sold through the Marketplace. For 2015, that was $2,484 per year.

For the percentage method, the only household income counted is the part that’s above the yearly tax-filing threshold. That’s $10,150 for individuals and $20,300 for couples filing jointly in 2014.

  • For 2016, the percentage of income penalty is 2.5%. It’s also $695 for each adult and $347.50 for each child under 18 years old. The maximum total is $2,085.
  • For 2015, the percentage of income penalty is 2%. It’s also $325 for each adult and $162.50 for each child under 18 years old. The maximum total is $975.
  • For 2014, the percentage of income penalty is 1%. It’s also $95 for each adult and $47.50 for each child under 18 years old. The maximum total is $285.

Take note that these are annual amounts. If you’re not covered for 3 months, then you only pay 3/12 of the amount. You won’t suffer any criminal penalties for failure to pay. The IRS will take back the fee you owe from any future tax refunds.

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