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 2016, 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.
Our calculator is the simplest way to figure the penalty, but here’s how it's calculated.
The penalty will be the lesser of:
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 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: 2.5% in 2016.
|Year||Adult||Child||Family Cap||% of Income|
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 2016.
Step 1. Calculate the flat dollar amount: ($695 x 2) + (347.50 x 3) = $2,432.50. But the family cap of $2,085 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 .025 = $1,625
Step 3. Determine the greater of the two calculations to determine the penalty.
Penalty: Since $2,085 is the greater of the two calculations, the taxpayer would incur a shared responsibility penalty of $2,085 on the 2016 federal tax return filed in 2017.
Example 2: Using the example above, assume there was no coverage for 9 months.
Step 1. Calculate the flat dollar amount: ($695/12) x 9 = $521.23 x 2 = $1,042.50, plus (347.50/12) x 9 = $260.63 x 3 = $781.88, total $1,824.38. Then calculate the family cap of 300% of the flat dollar penalty as ($2,085/12) x 9 = $1,563.75. 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 .025) = ($1,625/12) x 9 = $1,218.75.
Step 3. Determine the greater value of the two calculations to determine the penalty.
Penalty: Penalty: The taxpayer would incur a shared responsibility penalty of 1,563.75.