The answer to whether you will have to pay tax penalties under Obamacare (formally known as the Affordable Care Act) depends on your employment and whether or not your income is high enough under the mandated rules that require you to purchase health care coverage. This article covers the details but in a nut shell any of the following would exclude you from having to pay Obamacare penalties:
- Individuals or families who fall below income-tax filing thresholds (updated every year and based on age, filing status and sources of income) would not be required to get health care coverage and would not pay a penalty and may even get subsides to offset health insurance purchased through newly established health insurance marketplaces.
- People who are unemployed or cannot find a policy that costs less than 8% of their modified adjusted gross income would also be exempt from penalties under the individual mandate.
- You are covered by an employer sponsored health plan
The Congressional Budget Office (CBO) estimates that 6 million people, about 2 percent of the population, will be assessed a penalty in 2015 and 2016.
What are the Penalties?
Initially the penalties are not so severe as it is expected that it will take a year or so for people to understand the new health care regulations and rules. But subsequent to 2015 penalties do jump significantly. Here is a breakdown of penalties:
Individuals: For the 2014 financial year, individuals who did not have insurance would owe $95, or 1% of income, whichever is greater. In 2015 it would be the greater of $325 or 2% of income. But the penalty would rise markedly in 2016, reaching $695, or 2.5% of income, whichever is greater. From 2017, the minimum tax per person will rise each year with inflation. And for children 18 and under, the minimum per-person tax is half of that for adults. The tax penalty is pro-rated, so that a person who is not covered for only a single month would pay 1/12th of the tax that would be due for the full year.
Families: For families the health insurance non-compliance penalty is capped at $285 per family, or 1% of income, whichever is greater. By 2016, it will jump sharply to $2,085 per family, or 2.5% of income, whichever is greater. From 2017, the penalty/tax will rise in line with inflation. The minimum amount per family is capped at triple the per-person tax, no matter how many individuals are in the taxpayer’s household. So, for example, a couple with one child over 18 (or two children age 18 or under), and no coverage, would pay a minimum of $285 in 2014, $975 in 2015 and $2,085 in 2016. And that would be the minimum no matter how many uninsured dependents a taxpayer has.
Health Care Coverage Reporting
The penalties will start for financial year 2014, which means you won’t have to report your health care coverage or exemptions until you file your 2014 income tax return in 2015. Insurance providers will also be required to report their coverage details to the IRS and other government agencies. Tax returns from employees, employers and insurance providers will be combined to determine who will be hit with a penalty notice.