How Much is the Obamacare Individual Penalty in 2014?

Part of the health insurance mandate is a penalty for noncompliance that the IRS collects.

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If you're not exempt from the Obamacare health insurance mandate, you must obtain at least minimal coverage by March 31, 2014 for yourself and your dependents to avoid a tax penalty (officially called a "shared responsibility payment"). This is the only punishment for those who flout the mandate. There are no criminal or other penalties for noncompliance.

There has been a good deal of misinformation about this penalty—many news stories and websites have stated that the penalty for 2014 is only $95. This is true only for a small minority of Americans—for most people who fail to get insurance it will be much higher.

The exact amount of the penalty is based on the amount by which your household income exceeds the annual income tax filing threshold ($10,000 for an individual and $20,000 for a family in 2013). The amount is pro-rated based on the number of months during the year that you're uninsured. You will not be subject to the penalty if you're uninsured for less than three months in a given year.

For 2014, the penalty is $95 per adult and $47.50 per child (up to $285 for a family) or 1% of income, whichever is greater. In other words, the $95 amount is a floor, not a ceiling. Only uninsured people with adjusted gross income (AGI) between $16,000 and $19,650 will pay $95; everybody else will pay more (those with AGI below $16,000 will qualify for Medicaid and not have to pay any penalty). For example, an individual taxpayer whose AGI is $46,000 would have to pay a $358 penalty. A family of four with two dependent children and an AGI of $100,000 in 2014 would have to pay a penalty of $718.

In 2015 and later, the penalty will be much higher. For 2015, the penalty is $325 per adult and $162.50 per child (up to $975 for a family) or 2% of income, whichever is greater. For 2016, the penalty is the greater of $695 per adult and $347.50 per child (up to $2,085 for a family) or 2.5% of income, whichever is greater. Thus, the 2015 penalty will be twice the 2014 penalty and the 2016 penalty 2.5 times greater than the 2014 penalty. The penalty amounts will be indexed for inflation after 2016.

However, the penalty may never exceed the cost of a “bronze-level” health plan available on your state health insurance exchange.

The IRS enforces the penalty. The amount is assessed as a federal tax liability that you're supposed to pay when you file your tax return. Many anti-Obamacare “experts” have pointed out that the IRS has limited legal powers to collect the penalty. The IRS can’t file a lien on your property or levy against your assets to collect the penalty, nor may it charge interest on any amount you owe. There are also no criminal sanctions available.

The only way the IRS may collect the penalty is by withholding it from your tax refund (if you are eligible for one). Thus, in theory, all you need do is make sure you’re not entitled to a tax refund and you’ll never have to pay the penalty. In other words, if you don’t overpay your taxes, the IRS won’t be able to collect the penalty. In practice, this will prove very difficult, if not impossible for most people. For this strategy to succeed, you would have to eliminate all overpayments to the IRS in all future tax years, not just the year you don’t comply with the Obamacare mandate. The IRS can wait for any year you’re entitled to a refund to collect the penalty. Moreover, as the law is written, the IRS can collect the penalty from overpayments you made in past prior years—at least the prior three years, and maybe longer.

The moral: before you decide to violate the Obamacare health insurance mandate consider that you’ll be liable for a penalty and, sooner or later, the IRS will collect it. You’ll probably be better off just getting health insurance.


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