Already, the fear-mongers are sounding the alarm: If you don’t purchase exactly the type of health insurance that the Affordable Care Act (ACA) requires, come tax-time the IRS will slap you with a stiff penalty.
As I explain in the post below, the ACA mandates that if you’re not already covered, you must buy insurance that includes “essential benefits” such as hospitalization, maternity and newborn care, and mental health services. Ignore the mandate this year, and you will be fined when you file your taxes next year.
How Much Would You Owe?
If you opt out of purchasing insurance that covers you and your family in 2015, the penalty will equal Either:
- 1 percent of your income over your “filing threshold” (about $10,000 for an individual $20,000 for a couple) OR
- a flat dollar amount, of $95 per uncovered adult and $47.50 per child, up to a maximum of $285, whichever Is greater.
“Whichever is greater” means that wealthier taxpayers will be required to pay 1% of their income, and as a result can easily wind up owing significantly more than $285. This doesn’t mean that millionaires would be fined tens of thousands of dollars. An affluent family’s penalty also is capped, at the average cost of bronze plans sold in state Exchanges nationwide.
In 2014, nationwide, the average bronze plan premium was $2,448 per individual and $12,240 for a family with five or more. This year, across the nation, average premiums were slightly higher, so a family of five earning more than roughly $145,000 would have to fork over a little more than $12,240.
If This Sounds Complicated, Turbo-Tax Makes it Simple
If, at this point, your eyes are glazing over, the good news is that you can calculate your penalty, quickly and easily, on Turbotax’s online calculator. Just type in your income, zip code, and the size of your household, and in about three minutes, TurboTax will tell you the size of your fine—and, most importantly, whether you might qualify for an exemption to the penalty.
How You Might Escape the Fine
The chances that the IRS will fine you are slim. What the fear-mongers rarely mention is that, thanks to the many exemptions built into the law, only about 10 percent of the uninsured will owe a penalty. The Congressional Budget Office (CBO) estimates that in 2016, just 4 million uninsured Americans will face fines, while 26 million will qualify for waivers.
Recently, I wrote a piece for Consumer Reports listing some of the most common exemptions:
- if the lowest-priced coverage available to you, even after applying a government subsidy, would cost more than 8 percent of your household’s income, the fine is waived;
- –if you earn less than $10,150 (or $20,300 for a married couple) and so are not required to file income taxes you owe no fine and don’t even have to apply for a wavier;
- if you were uninsured for less than 3 consecutive months, you will not be fined.
(As I explain in the post below, this means that if you sign up for 2015 coverage by February 15 you will be insured as of March 1, and will not owe a penalty for 2015.)
Little Known “Hardship Exemptions”
On the Consumer Reports website, I also point out that late in 2013, the government added 14 new waivers
for people who have experienced personal hardships such as domestic violence, substantial property damage from a fire or flood, from a fire or flood, the death of a close relative, a utility cut-off, or bankruptcy.
Perhaps most importantly, the government is offering a one-year waiver to people who don’t qualify for Medicaid because they live in a state that has refused to expand the program under ACA rules.
To learn more about the hardship exemptions, how to apply for any exemption, and information on how you might escape the penalty, but still buy catastrophic insurance, read the rest of the post on Consumer Reports.org.