Penalty

If you’re required to have health insurance but don’t (including for your dependents), or if the insurance doesn’t meet the minimum essential coverage requirement, you’ll face a penalty, called the Shared Responsibility Penalty. The penalty is figured for each uninsured month starting with January 2014, and is calculated and collected when you file your tax return.

If you are uninsured for less than three consecutive months, you will not face a penalty. If you are uninsured for three months or more, the three-month exemption is not available, and you are penalized for the entire period. Also, if you are uninsured for two or more periods during the year, only the first or earliest period is exempt from penalty.

How the penalty is calculated

Our calculator is the simplest way to figure the penalty, but here’s how it's calculated.

The penalty will be the lesser of:

  • The sum of the monthly penalty amounts (see below) for the months you didn’t maintain minimum essential coverage, or
  • The national average premium for a bronze plan for your family size, offered through a Health Insurance Marketplace. For 2015, the national average premium for the bronze plan is $207 per individual per month ($2,484) with a cap of 5 individuals, or $1,035/mo ($12,420/year).

Basically your penalty cannot be greater than what your cost of bronze-level insurance would have been if you (and your dependents) had been covered.

Typically, the monthly penalty for an individual who fails to have minimum essential coverage is equal to the greater of 1/12 of a flat dollar amount or a percentage of income – not to exceed the cost of national bronze-level insurance:

  • The flat dollar amount for all nonexempt individuals in the household (up to a maximum of 300% of the flat dollar amount, which may include a spouse or dependents). The flat dollar amount is $95 in 2014, $325 in 2015, and $695 in 2016. Future years will be increased by the Cost-of-Living Adjustment. The 300% cap is $285 for 2014, $975 for 2015, and $2085 for 2016. If an individual is not age 18 as of the uncovered month, the applicable dollar amount is one-half of the flat dollar amount.

The applicable percentage of income amount is calculated as the excess of the taxpayer’s household income, minus the taxpayer’s federal income tax return filing threshold, multiplied by the percentage of income amount: 1% in 2014, 2% in 2015, and 2.5% in 2016.

Year Adult Child Family Cap % of Income
2014 $95 $47.50 $285 1%
2015 $325 $162.50 $975 2%
2016 $695 $347.50 $2,085 2.5%

The penalty will be the greater of the two calculations.

Example 1: Family of 5 (taxpayer and spouse both under 65, and 3 children under 18) has a household income of $85,600 and their threshold for the filing status is $20,600. The family had no minimal essential coverage for all 12 months of 2015.

Step 1. Calculate the flat dollar amount: ($325 x 2) + (162.50 x 3) = $1137.50. But the family cap of $975 is lower, so a $975 penalty is used to compare against the percent of income calculation in the next step.

Step 2. Calculate the penalty as a percent of income: ($85,600 - $20,600) x .02 = $1300

Step 3. Determine the greater of the two calculations to determine the penalty.

Penalty: Since $1,300 is the greater of the two calculations, the taxpayer would incur a shared responsibility penalty of $1,300 on the 2015 federal tax return filed in 2016.

Example 2: Using the example above, assume there was no coverage for 9 months.

Step 1. Calculate the flat dollar amount: ($325/12) x 9 = $243.75 x 2 = $487.50, plus (162.50/12) x 9 = $121.88 x 3 = $365.64, total $853.14. Then calculate the family cap of 300% of the flat dollar penalty as ($975/12) x 9 = $731.25. The cap is lower, so $731.25 is used to compare against the percent of income calculation.

Step 2. Calculate the penalty as a percent of income (65,000 x .02) = ($1300/12) x 9 = $975.00.

Step 3. Determine the greater value of the two calculations to determine the penalty.

Penalty: The taxpayer would incur a shared responsibility penalty of 975.00.

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