How big is the penalty for not getting health insurance?
The penalty for not getting adequate health insurance is likely higher than the assumed $95. Williams explains how the penalties vary and how big they can get.
President Barack Obama hugs Edna Pemberton, who introduced him, before speaking with volunteers who helped people enroll through the HealthCare.gov site at Temple Emanu-El in Dallas. Penalties for not signing up for health insurance vary but are likely higher than the assumed $95.
Pablo Martinez Monsivais/AP Photo/ File
Stories about the聽often tell readers that they鈥檒l have to pay a $95 penalty if they don鈥檛 get adequate health insurance coverage. But, like a lot of other things I read about the health law, that鈥檚 not quite correct. The penalty (which聽聽is actually a tax) could be less or, more likely, a lot more. It鈥檚 a complicated story.
The basic penalty is $95 in 2014鈥攊f聽you鈥檙e unmarried with no dependents and your income is less than $19,500. If your income is higher, you鈥檒l owe more: 1 percent of the amount by which your income exceeds the sum of a single person鈥檚聽聽in the federal income tax. That鈥檚 $10,000 in 2013. But be warned: Income equals adjusted gross income (AGI鈥攖hat number on the last line on page 1 of your tax return)聽plus聽any tax-exempt interest and excluded income earned abroad. If you make $30,000, your penalty will be $200.
Still with me? Good, because it is about to get more confusing.聽
If you鈥檙e married or have kids, you鈥檒l owe a minimum of $95 per person for yourself, your spouse, and each dependent over age 17 plus half that amount for each child under 18. But the total can鈥檛 exceed three times the basic $95 tax, or $285. Except it can. If 1 percent of your income (minus your and your spouse鈥檚 personal exemptions and standard deduction鈥�$20,000 in 2013鈥攑lus those add-ons) is more than $285, that鈥檚 what you鈥檒l owe. Oh, and you鈥檒l have to include your dependents鈥� income in the calculation.
But there鈥檚 a cap. Your total penalty can鈥檛 exceed the national average premium for a bronze-level health policy for your family鈥檚 size. We don鈥檛 know what that is yet but it鈥檚 surely more than $95.聽聽that the average bronze premium in 2016 will be between $4,500 and $5,000 for an individual plan and more than $12,000 for families. If your income exceeds $1.2 million next year, that ceiling might apply.
That鈥檚 just for 2014. The penalty will grow over time: The dollar minimums will be $325 in 2015 and $695 in 2016 and will grow with inflation after that (rounded down to multiples of $50). By 2023, it will hit a projected $800. And the percentage of income penalty also grows鈥攖o 2 percent in 2015 and 2.5 percent after that.
Some people won鈥檛 have to pay the tax. Even if you don鈥檛 have insurance, you鈥檙e safe if you have religious objections to health insurance, are an American Indian, are in jail, or are 鈥渘ot lawfully present鈥� in the U.S., among other reasons. You鈥檙e also protected if buying insurance would impose economic hardship. That happens if it would cost more than 8 percent of your income (defined slightly differently of course).
If you owe a penalty, you鈥檙e supposed to pay it with your income tax return. But there鈥檚 not much the IRS can do if you don鈥檛 pay. They can鈥檛 put you in jail or garnish your wages. In fact, about the only way the IRS can collect is if you鈥檙e due a refund. They can deduct the penalty from this year鈥檚 and future refunds.
A聽well-known聽radio personality is聽urging people to avoid the penalty by making sure you won鈥檛 get a tax refund. Ignore him. Trying this requires many years of careful planning and is easy to mess up. Besides, most Americans love their refunds.
There is, of course, a simpler way to avoid the penalty: Sign up for health insurance.