How Much Is the Health Insurance Penalty for...

a  Learn to calculate your family health insurance penalty and know what you'll owe.image ©iStockphoto/Tim McCaig Will your family have to pay a tax penalty for not having health insurance? How much is the family health insurance penalty? Will it be cheaper to go without family health insurance and pay the penalty, or to buy health insurance?Knowing the amount of your penalty can help you budget for it, but calculating the penalty for a family can be trickier than calculating the penalty for an individual.BackgroundA controversial part of the Affordable Care Act, the individual mandate requires Americans to have health insurance by January 1, 2014. Those who don’t have coverage face a penalty tax, the shared responsibility payment. Only a small number of Americans are exempt from the requirement to have health insurance coverage.Each state has a health insurance exchange to help families and individuals find insurance. Subsidies are available to help low-income families afford health insurance. But, if you’re accustomed to going without insurance and don’t qualify for a subsidy, you’ll have to squeeze this new expense out of the family budget or you’ll owe the penalty tax.How to calculate the family health insurance penaltyFirst, scroll down to look at the penalty table at the bottom of the page. Then come back up to learn how to use it.The penalty your family will owe is either a fixed minimum amount or a percentage of your family’s income, whichever is larger. The percentage-of-income penalty usually hits middle-class or wealthier families. It ensures that the penalty isn't so small it's merely a nuisance. The fixed minimum penalty usually hits low-income families. It ensures everyone pays at least a minimum penalty.Here’s how you figure out your family's penalty.Calculate the family’s minimum penalty.Calculate the family’s percentage-of-income penalty.Compare the two results; you’ll owe the larger of the two.How to calculate the family’s minimum penaltyTo calculate the family’s minimum penalty, add together the individual penalty amounts for each family member using the penalty for the appropriate year from the table below.Two rules make the family’s minimum penalty smaller. The individual penalty is halved for children under 18 years old. The family’s minimum penalty is capped at three times the individual penalty.ExampleTom and Sandy have 3 young children. Nobody in the family has health insurance. They need to calculate the family’s minimum penalty for the year 2015.The table shows the minimum penalty is $325 for each individual in the family. But, only the adults owe the full amount. The minimum penalty is half that amount, or $162.50, for each of the kids.$325 (for Tom) + $325 (for Sandy) + $162.50 (for child 1) + $162.50 (for child 2) +$162.50 (for child 3) = $1,137.50 (for the family)But, a family’s minimum penalty maxes out at three times the individual minimum penalty, or $325 x 3 = $975. Since $1,137.50 is larger than $975, they’ll use $975 for the amount of their minimum family penalty as they move forward with their calculations.How to calculate the family’s percentage-of-income penaltyFigure the percentage-of-income penalty for the family based on the entire household’s income. From the table below, the penalty percentage for 2015 is 2% of the income above the filing threshold.Tip: Don't pay the government too much. Only pay the health insurance penalty on the portion of your income that's over the filing threshold. Subtract the filing threshold from your income before calculating the penalty.Tip: The filing threshold is the amount of income that requires you to file a tax return. People with incomes below the filing threshold don’t have to file an income tax return; those with incomes above the threshold must file.Tip: You can estimate the filing threshold using the 2012 figures of $9,750 for single filers, $12,500 for head-of-household filers, and $19,500 for married couples filing jointly. Or, for the most accurate results, you can get the filing threshold for the year in question from publication 501 at the IRS forms and publications page.ExampleTom and Sandy together will make $100,500 in 2015. They file their taxes as a married couple filing jointly, so they’ll use $19,500 as an estimate of their filing threshold, subtracting it from their income before they calculate the percentage.$100,500 - $19,500 = $81,000The family’s income - the filing threshold = the portion of their income to be penalized.$81,000 x 0.02 = $1,620The portion of income to be penalized x the 2% penalty = their percentage-of-income penalty.Pulling it all together: know what you’ll oweNow that you’ve calculated your family’s minimum penalty and your family’s percentage-of-income penalty, you need to compare them. Your family’s shared responsibility payment will be based on the larger of those two amounts.There are a few situations that might decrease your family’s penalty.Do you have a large penalty?The penalty maxes out at the national average cost of a bronze-tier family health insurance plan for that year. Will your family have health insurance for part of the year?Only pay the penalty for the months your family is uninsured. For example, if your family was uninsured for seven months of the year, you would only pay seven-twelfths of the yearly health insurance penalty. Can’t find affordable health insurance?If you can’t find family health insurance that costs less than eight percent of your household income, your family may be exempt from the penalty. The eight percent figure is based on what your family has to pay for the coverage, not on the cost before employer contributions or premium subsidies.ExampleTom and Sandy’s minimum family penalty for 2015 was $975. Their family’s percentage-of-income penalty was $1,620. Since their percentage-of-income penalty is larger, that’s the figure their family penalty will be based on. If their family had been uninsured all year, they would owe a shared responsibility payment of $1,620.However, Sandy switched jobs in July, and her new employer offered health insurance. The entire family was covered by health insurance starting in September. Since they were only uninsured for the first 8 months of the year, they only have to pay the penalty for the portion of the year they were without coverage.$1,620 x 8/12 = $1080The yearly penalty amount x the part of the year they were uninsured = the final family penalty owed.Tom and Sandy owe a shared responsibility payment of $1080 because their family lacked health insurance coverage for 8 months of 2015. Along with their 2015 income taxes, this penalty tax is due to the IRS by April 15, 2016.Sources:US Code 2011, Title 26, subtitle D, Chapter 48, sec5000AIRS: Questions and Answers on the Individual Shared Responsibility ProvisionCongressional Research Service report: Individual Mandate and Related Information Requirements Under the PPACAYear 2014Year 2015Year 2016After 20161% of income above filing threshold2% of income above filing threshold2.5% of income above filing threshold2.5% of income above filing threshold

How Much Is the Health Insurance Penalty for an...

aWill you have to pay a tax penalty for not having health insurance? How much is the health insurance penalty? Will it be cheaper to go without health insurance and pay the penalty, or to buy health insurance?One of the more controversial parts of the Affordable Care Act is the individual mandate which requires Americans to have health insurance by January 1, 2014. Although a small number of Americans are exempt from the requirement to have health insurance coverage, the rest of us will face a penalty, the shared responsibility payment, if we are uninsured.Each state will have a Health Insurance Exchange to help people find insurance, and subsidies will be available to help low income people afford health insurance. But, if you’re accustomed to going without insurance and don’t qualify for a subsidy, you’ll have to squeeze this new expense out of your budget or pay the individual mandate penalty.If you’re thinking about forgoing health insurance in hopes of saving money, the cost of the penalty will eat into your savings. Knowing the amount of your penalty can help you budget for it.If you're trying to calculate the penalty for a family, you can learn how here.Calculating the health insurance penaltyFirst, scroll down and look at the Individual Mandate Penalty Table at the bottom of the page. Then come back up to learn how to use it.The penalty you’ll pay is either a fixed minimum amount, or a percentage of your income. Using the table, calculate the penalty as a percentage of your income first. Then, compare that to the minimum health insurance penalty for that year. Your individual mandate penalty will be the larger of the two.Tip: Don't pay the government too much. Only pay the health insurance penalty on the portion of your income that's above the filing threshold. Subtract the filing threshold from your income before you calculate the penalty. (You’ll see examples of this below.) Tip: The filing threshold is the amount of income that requires you to file a tax return. People with incomes below the filing threshold don’t have to file an income tax return; those with incomes above the threshold must file. You can estimate the filing threshold using the 2012 filing threshold figures of $9750 for single filers and $19,500 for married couples filing jointly. Or, you can get the actual filing threshold for the year in question from publication 501 at the IRS forms and publications page.Situations that might decrease your penaltyCouldn’t find affordable health insurance?If you can't find health insurance that costs you less than 8% of your income, you may be exempt from the penalty. (The government can increase that 8% figure in the future if the cost of health insurance increases faster than average incomes increase.)Do you have a large penalty?The penalty amount is capped at the national average cost of a bronze-tier health insurance plan for that year.Did you have health insurance for part of the year?Only pay the penalty for the months you went without health insurance. For example, if you went without health insurance for seven months of the year, you would only pay seven-twelfths of the yearly health insurance penalty.Example AStan is a single 24 year old tax filer who made $45,000 in 2015 and was uninsured all year. Although his employer offered health insurance costing $280 per month, Stan felt he couldn't afford the $280 each month, so chose to go without insurance. Using the 2012 filing threshold amount of $9750, here are Stan’s estimated calculations:Step 1$45,000 - $9,750 = $35,250Stan’s income - filing threshold for single filers = portion of Stan’s income used to calculate the penaltyStep 2$35,250 X 0.02 = $705portion of Stan’s income used to calculate the penalty X the penalty percentage for 2015 which is 2% or 0.02 = Stan’s percentage-of-income penaltyStep 3Check the table. Compare the minimum penalty for 2015 with the percentage-of-income penalty you just calculated, and Stan’s individual mandate penalty will be the bigger of the two.Since $705 is larger than the minimum health insurance penalty of $325 for 2015, Stan will have to pay a penalty of $705 when he files his taxes on April 15, 2016. Stan’s employer offered health insurance that would have cost Stan less than 8% of his income, so Stan isn’t exempt from paying the penalty.Example BMary is a single 45 year old who was uninsured for eight months in 2016. The rest of 2016, she had health insurance. She earned $75,000. Using the 2012 filing threshold figures to estimate Mary’s penalty, here are the calculations:Step 1$75,000 - $9750 = $65,250 Mary’s income in 2016 - filing threshold for single filers = portion of Mary’s income used to calculate the penaltyStep 2$65,250 X 0.025 = $1,631.25portion of Mary’s income used to calculate the penalty X the penalty percentage for 2016 which is 2.5% or 0.025 = Mary’s percentage-of-income penaltyStep 3Check the table and choose the larger of the two penalties. The minimum penalty for 2016 is $695. Since that's less than Mary’s percentage-of-income penalty of $1631.25, Mary has to choose the percentage-of-income penalty.Step 48/12 X $1631.25= $1087Mary only has to pay eight-twelfths of the penalty since she was only uninsured for 8 months. So, Mary will have to pay an individual mandate penalty of $1087 when she files her taxes.Sources:US Code 2011, Title 26, subtitle D, Chapter 48, sec5000A; IRS: Questions and Answers on the Individual Shared Responsibility Provision; Congressional Research Service report: Individual Mandate and Related Information Requirements Under the PPACAYear 2014Year 2015Year 2016After 20161% of income above filing threshold2% of income above filing threshold2.5% of income above filing threshold2.5% of income above filing threshold