The Affordable Care Act provides everyone with the opportunity to purchase health insurance. However, those that do not purchase insurance that contains minimum essential coverage face a penalty and have to pay a tax. This tax was introduced for the 2014 tax year and will increase gradually until 2016, after which it will be adjusted for inflation. The tax is calculated using the higher of a percentage of an individual's income or a flat fee.
The fee for not having health insurance
The fee is calculated two different ways – as a percentage of your household income, and per person. You’ll pay whichever is higher.
Percentage of income.
2.5% of household income.
Maximum: Total yearly premium for the national average price of a Bronze plan sold through the Marketplace
$695 per adult
$347.50 per child under 18
The tax after 2015: After 2015, the method for determining the fee will remain the same and the limits will be increased to 2.5 percent of household income or $695 per person. In subsequent years, this amount will be adjusted for inflation.
For those that are subject to this tax, the tax can be paid on the federal income tax return that is filed for the year in which one did not have coverage. In other words, for someone without coverage in 2014, the tax returns were filed in 2015, and this is when the fee will have to be paid.
There are several other important considerations, exceptions and adjustments that apply to this law. Specifically, some important facts to know are the following:
If the tax is required but is not paid, the IRS will deduct this fee from future tax returns. At the moment, there are no other penalties, such as liens or levies that are administered for failing to pay the fee.
Those that are either unemployed or have low income may be eligible for an exemption from the fee. To determine eligibility, one can fill an application in the Health Insurance Marketplace.
For those that are uninsured for part of the year, the penalty is prorated to the number of months that someone is without coverage. However, there is a minimum of three months and those without coverage for less than three months in a year are not subject to the fee.
The same rules apply to all states and the penalties are the same whether or not a state runs its Marketplace or if it's administered by the Federal Government.
The best way to avoid paying any fees is to purchase the minimum required health insurance. However, for those that cannot or chose not to do so, the annual fee will be required. The above should provide a sufficient overview of how the fee is applied and other considerations for situations.