Obamacare Tax Penalty for Not Having Health Insurance

  • Did you know that because of the Affordable Care Act (Obamacare) your tax returns will never be the same? If you, your spouse or your dependents lack health insurance (beginning in 2014) you may owe a penalty on your federal tax return (unless you qualify for an exemption). To avoid the penalty, you must have a qualified health plan that meets the standards under Obamacare.

    You may be exempted from the penalty if:

    • You already have health insurance provided by your employer.
    • Your share of the health insurance premium exceeds 8% of your household AGI (less any federal tax credit subsidizing the insurance).
    • Your total household income is below the level needed to file a tax return.
    • You are without coverage for less than three months.
    • You can show that a hardship forced you to go without coverage.
    • You belong to a religious group that opposes private or public insurance.
    • You already have health coverage under Medicare, Tricare, Veterans Administration, Medi-Cal or Medicaid.

    The amount of the penalty

    The amount of the penalty for being uninsured depends on your family size, income and length of time without insurance. The penalty is paid annually on your federal tax return. The amount of the penalty is either a percentage of your household income or a flat dollar amount (whichever is greater). You would owe 1/12th of the penalty amount for each month that you or your dependents lacked qualifying coverage and were not exempt.

    • For 2014: the penalty is $95 per adult; $47.50 per child or 1% of the annual household income (capped at $285).
    • For 2015: the penalty is $325 per adult; $162.50 per child or 2% of the annual household income (capped at $975).
    • For 2016: the penalty is $695 per adult; $347.50 per child or 2.5% of the annual household income (capped at $2,085).
    • For 2017 and beyond: the penalty is the 2016 amount indexed to inflation.

    How to avoid the penalty

    To avoid the per-month Obamacare penalty, you must obtain a qualified health plan during the open enrollment period (available from November 15th through February 15th each year) and maintain it throughout the year or get an exemption. Open enrollment is the only time of the year that you can obtain coverage, switch plans or get subsidies without qualifying for a special enrollment period.

    The only way to get subsidized insurance is through a qualified health insurance exchange. (For information on subsidized plans, see our article: A Premium Tax Credit to Subsidize Health Insurance Costs).

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