Will you owe a penalty under Obamacare?

Congressional Budget Office predicts: just 1.4 percent of Americans will end up paying tax for not purchasing health insurance

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  • healthinsurance.org contributor
  • August 23, 2012

Millions of Americans are looking forward to a host of health coverage benefits that will kick in with the new health reform law in 2014. But clearly, not everyone is happy with the reforms – or the individual mandate that requires Americans to purchase health coverage.

Many folks are giving serious consideration to the idea of simply not purchasing coverage. If you’re one of them, one of your first concerns will be whether you’ll be subject to a tax that’s built into the law – and if you are, what penalty you might expect to pay.

Must you pay?

Use our calculator to see if your family may be subject to a penalty for not having health insurance. See exclusions at right.

Are you married: Yes No
Number of uninsured adults:
Number of uninsured children:
Adjusted Gross Income: $

If, for whatever reason, you decide not to purchase coverage in 2014, you can use the calculator on this page to determine the size of the penalty you would pay. (Find out how the formula for our calculator works in the box at the bottom of this page.)

But here’s the good news: You may not even need to worry about a tax penalty.

A fraction of Americans will
be subject to the penalty

Under the Affordable Care Act, the Urban Institute estimates, just 6 percent of the population (roughly 18 million Americans) will even have to consider the question: “Should I purchase health insurance, or pay a tax?” That’s right: a whopping 94 percent of the population will have no reason to worry about paying a penalty. (See “You won’t pay a tax if:” at the top right of this page.)

So … will the remaining 18 million all pay a penalty? Probably not. That’s because roughly 11 million of them will be low-income or middle-income Americans who are eligible for a government subsidy to help cover the cost of their premiums for coverage through the state health insurance exchanges. Chances are, most of them will take the government up on its offer to help purchase insurance with a wide range of essential benefits.

That still leaves about 7 million Americans who won’t qualify for a premium subsidy. Today, many of them would dearly love to buy insurance – if only they could find an affordable policy. But many suffer from an illness that makes them uninsurable. The good news for them is that under the ACA, insurers will no longer be able to shun those who suffer from pre-existing conditions, or charge them sky-high premiums.

These are the reasons why the Congressional Budget Office (CBO) estimates that in the end, only about 1.4 percent of the population will actually pay a penalty.

How stiff will your penalty be?

You may be surprised to discover that for median-income families, the penalty that conservatives call a “tax on the middle class” is relatively modest. But it is a progressive tax: if a family earning $500,000 decides it doesn’t want to join the rest of us in the insurance pool, it could owe $12,500 to $13,000 in 2016.

Today, the median net family income in the United States is roughly $66,000 to $68,000. (Half of U.S. families earn less; half earn more.) In 2016, the penalty for a middle-income family of four earning $60,000 would be about $2,085 – far less than the penalty a more affluent family would pay. (The penalty would be about $4,300 for a family with a household income of $200,000; about $6,800 for a $300,000 household; about $11,800 for a $500,000 household; etc.)


How the penalty works

Your tax is the greater of either 1) a flat-dollar amount based on the number of uninsured people in your household; or 2) a percentage of your income (up to the cost of a Bronze plan available through your state exchange).

This means wealthier households will wind up using the second formula. For example: in 2016, an individual earning less than $37,000 would pay just $695 (flat-dollar calculation) while an individual earning $200,000 would pay $5,000 (2.5% of his income. (Hat tip to the Congressional Research Service.)

1) Flat-dollar amount

In 2014, the flat-dollar penalty will be $95 per uncovered adult (rising to $325 in 2015 and $695 in 2016) plus half that amount for each uninsured child under age 18. Your total household penalty is capped at three times the adult rate, no matter how many children you have. In 2014, that’s $285 ($975 in 2015 and $2085 in 2016).

2) Percentage of income

In 2014, the penalty is 1 percent (rising to 2 percent in 2015, 2.5 percent in 2016). The penalty is capped at the average cost of a Bronze plan, which the CBO estimates will be $4,500-$5,000 for an individual and $12,000-$12,500 for a family in 2016. Wealthy households will be happy to know that they will pay a penalty only on that portion of their adjusted gross income “above and beyond their filing threshold,” explains the Center on Budget Policy and Priorities‘ Judy Solomon.

But if you look at the calculator above, you don’t have to look up your filing threshold. Just enter your adjusted gross income (which you will find on the bottom of the first page of your federal income tax return) and our calculator will do the rest.