Will 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. Although a small number of Americans are exempt from the requirement to have health insurance coverage, the rest of us face a penalty, the shared responsibility payment, if we're uninsured.
Each state has a Health Insurance Exchange to help people find insurance, and subsidies are 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 have to squeeze this new expense out of your budget or pay the individual mandate penalty.
If you’re thinking about going without 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 rather than an individual, learn how here.
Calculating the health insurance penalty
First, 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 penalty
- Couldn’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.
Stan 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:
$45,000 - $9,750 = $35,250
Stan’s income - filing threshold for single filers = portion of Stan’s income used to calculate the penalty
$35,250 X 0.02 = $705
portion 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 penalty
Check 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.
- Tip: If you can’t remember how to work with percentage calculations, here’s a percentage calculator.
Mary 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:
$75,000 - $9750 = $65,250
Mary’s income in 2016 - filing threshold for single filers = portion of Mary’s income used to calculate the penalty
$65,250 X 0.025 = $1,631.25
portion 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 penalty
Check 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.
8/12 X $1631.25= $1087
Mary 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 PPACA
Individual Mandate Penalty Table
|Year 2014||Year 2015||Year 2016||After 2016|
|income based penalty||1% of income above filing threshold||2% of income above filing threshold||2.5% of income above filing threshold||2.5% of income above filing threshold|
|minimum penalty amount||$95||$325||$695||$695 + inflation adjustment|