Posted 11/08/2013 By

Obamacare 101: What Are The Penalties For Not Having Insurance?

Starting in 2014, those who do not purchase a minimum-benefit health insurance plan, either through their employer, or on the open market, will have to pay a tax penalty to the IRS. While these penalties are relatively small in the first year, they increase drastically in 2015 and 2016.

This page:

Briefly explains the reasoning behind the individual mandate.

Presents charts to project approximate penalties through 2016.

Links to to a simple calculator that approximates your monthly premium and subsidy under Obamacare.

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How The Tax Penalties Are Assessed Under The Individual Mandate Portion Of The ACA.

The individual mandate is probably the single most contentious aspect of Obamacare, as it imposes stiff penalties on those individuals and families who do not purchase minimum-benefit health insurance.

However, the individual mandate is also the key to the success of the Affordable Care Act, because it incentivises young people who are currently uninsured to buy health insurance, thus creating a larger risk pool and lowering premiums for everyone.

The penalties prescribed in the ACA are intended to encourage everyone to purchase a health insurance policy that meets the minimum criteria. Those who do not or cannot, but do not qualify for an exemption, will have their 2014 tax returns adversely affected by the IRS, in the form of tax penalties.

In essence, if you do not buy a minimum policy starting in 2014, you can expect a smaller refund the following year (if one would be due to you), or you will have to pay a higher tax if you owe money to the IRS in April 2015.

Now, the way that the penalty is applied is very simple: just as the subsidies decrease as you go up on the income scale, the penalties increase on the same scale (although they are capped, of course).

The penalty starts at the lowest end of the income spectrum at $95/year or 1% of income, whichever is greater. The minimum amount increases in both 2015 and 2016, and every year thereafter.

The following chart shows the approximate penalty over each of the next three years for a 40-year-old individual, based on his or her income:

2014 Individual Penalties

This chart shows the penalties for a family of four:

2014 Family Penalties

It is very important to keep in mind that those who are uninsured for less than three months, or those who experience a verifiable financial hardship, can apply for an exemption from these penalties.

Likewise, those who earn above the 400% of the federal poverty level will be exempt from the penalties if minimum-requirement policies in their area cost over 8% of their total annual income, after all credits and employer contributions have been factored in (this actually works for only a tiny percentage of the insurable population, more than likely not you).

Currently, it is very difficult to obtain accurate premium and subsidy information in many states, due to the problems with the federal exchange. However, you can use Ehealth's simple calculator to estimate how much assistance you can expect based on your income level, and what your monthly premium might be in 2014. Give it a try.

Here's a short video explaining the penalties:


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