Tax Penalty At-a-Glance: Who Will Pay & How Much

By law, you need to have health insurance or pay a penalty at income tax time. If you already get insurance through your employer or your partner's employer, you're all set. But what happens if you don't meet this requirement from the Affordable Care Act?

Who Has to Pay and How Much Is It?

If you don't buy health insurance, you may have to pay a penalty when you file your annual income taxes.

There are two ways the government will calculate what you owe when you file your taxes. You have to pay whichever amount is higher.

The penalty for 2017 is the greater of:

 

  • $695 for each adult and $347.50 for each child, but no more than $2,085 per family, OR
  • 2.5% of your family yearly taxable income, but no more than the national average annual premium for a bronze plan sold through the Marketplace

 

Don't Assume You Can't Afford Insurance

You can avoid having to pay the penalty by enrolling in an insurance plan. You may be eligible for financial help from the government. This help comes in the form of a tax credit, or a subsidy.

To get it, you must enroll in a plan through your state's Marketplace.

  • The amount you make each year must meet certain rules. Some financial support may be available even if you are in a middle-income range.
  • There are two types of subsidies available:
    • Premium tax credit. This money can help pay for your monthly insurance payments, which is called a premium.
    • Cost-sharing subsidy. If you qualify, you will pay less when you get health care or buy medicine because your deductibles, copays, and coinsurance will be lower.

Make Sure the Law Applies to You

Some people are exempt from the health care law. That means they don't have to buy health insurance and don't have to pay a penalty. If you answer yes to any of the following questions, you may be exempt from the law:

  • Are you in any one of these groups?
    • You are a member of a federally recognized Indian or Native Alaskan tribe
    • You are an undocumented immigrant
    • You are a prisoner
    • You belong to a recognized religion that doesn't believe in health insurance
    • You are an American living abroad for more than one year
    • You were uninsured for less than 3 months during the year
  • Do you qualify for a hardship exemption?
    HealthCare.gov lists criteria that may qualify you for a hardship exemption. Some examples include: being homeless, filing for bankruptcy, experiencing a natural disaster that damaged your home, and death of a family member. Find the full list here.
  • Will you have to pay more than 8% of your income for health insurance?
    Individuals and families who cannot find a health plan with a monthly premium that is less than 8.13% of their total household earnings are exempt. That means they do not have to buy insurance or pay a penalty.

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If your employer doesn't offer insurance: You can go to your state's health insurance Marketplace to shop for coverage and to see if you qualify for financial help.

If your employer does offer insurance but it’s not affordable or adequate: You may be eligible for subsidized insurance through the Marketplace. Affordable means that employees aren’t paying more than 9.66% of their household income toward an employee-only health plan. Adequate means that it covers, on average, 60% of medical costs.

WebMD Medical Reference Reviewed by Sarah Goodell on November 10, 2016

Sources

SOURCES:

Community Catalyst & Georgetown University Health Policy Institute: "Individual Requirement to Purchase Healthcare in the Affordable Care Act;" "Standardizing Health Plans;" and "Federal Subsidies: Helping People Afford Health Care."

FamiliesUSA: "Help is at Hand: New Health Insurance Tax Credits."

Henry J. Kaiser Family Foundation: "The Requirement to Buy Coverage Under the Affordable Care Act."

Jennifer Tolbert, director of state health reform, Henry J. Kaiser Family Foundation.

Centers for Medicare and Medicaid Services: "Fact Sheet: Individual Shared Responsibility for Health Insurance Coverage and Minimum Essential Coverage Proposed Rules."

HealthCare.gov: “Hardship exemptions from the fee for not having health coverage.”

Health Reform: Beyond the Basics, a project of the Center on Budget and Policy Priorities.

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