The ObamaCare Indiviual Mandate Tax Penalty Explained

One of the most incorrectly stated details of ObamaCare is the tax penalty for not buying health insurance.  Many think that if you don't buy insurance, there is simply a $95 penalty.  That's true for some but not for all; and, only this year.  Then, there are those that who say the penalty is $95 or one percent of income; whichever is higher.  Now, that may be closer to the truth but, understand the ObamaCare penalty is an IRS tax collection program and no IRS system of taxation is ever that simple in its execution.

First of all, Health and Human Services (HHS) states that if you are an individual making less than $10,100 or a married couple making less than $20,200, you are not eligible for a penalty.  The only reason these amounts are even in the law is because these are the thresholds for not having to file a 2014 tax return.  Thus, if you don't have to file a tax return, the IRS has no mechanism to collect the penalty.

But here's where the insanity of ObamaCare really shows up.

If you are an individual making less than $11,490, you are eligible for Medicaid (free healthcare) in all 50 states.  That's because HHS says you are in poverty.  So, if your income is between $10,100 and $11,490, the penalty literally becomes a stupidity tax for you not signing up for Medicaid.  If you live in a state that agreed to the expansion of Medicaid under the new health care law, the stupidity tax is raised for those individuals making less than $15,282.  Now, here's some further insanity.  If you and your wife have a combined income above $15,510, HHS says that you are above the poverty threshold and you must buy insurance through the exchanges.  The IRS says, not so fast.  We don't collect until you make $20,200.  So, in essence there is a nearly $4,500 "hole" where no penalty can ever be applied.

Now to the true application of the penalty.  If you are an individual making less than $19,150 or a family with a combined income of  under $35,500 the tax penalty is fixed. For 2014, the fixed penalty will be $95 per adult and one-half of that or $47.50 for each child; with a family cap of 300% of the basic adult penalty or $285.  In 2015, the penalty is raised to $325 per adult with a cap of  $975.  By 2016, the respective numbers are $695 and $2085.  In both 2015 and 2016, the child penalty is one-half the adult tax.

Also, in 2014, if you make more than the fixed rate thresholds, the penalty is calculated at 1% of gross income after subtracting the IRS filing threshold of $10,100 for singles or $20,200 for marrieds.  The cap for this tax group is based on the national average of the cost of an ObamaCare bronze plan.  Also, for each income level, there are deductions that lower the penalty for those who are either married or married with children.  For example, an individual making $50,000 would pay a tax (penalty) of $402.  If married with no children, the penalty drops to $305.  Add a child and the penalty is only $267.  That's why if you want to know what your particular penalty is, use the calculator below.

In 2015, the 1% penalty will be increased to 2%.  By 2016, it will hit 2.5% and, then, increased each year thereafter by the rate of inflation.

Now, any decent Democrat-minded law wouldn't be complete without exemptions from the tax penalty and here they are:

• You’re uninsured for less than 3 months of the year
• The lowest-priced coverage available to you would cost more than 8% of your household income
• You don’t have to file a tax return because your income is too low (Learn about the filing limit.)
• You’re a member of a federally recognized tribe or eligible for services through an Indian Health Services provider
• You’re a member of a recognized health care sharing ministry
• You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare
• You’re incarcerated, and not awaiting the disposition of charges against you
• You’re not lawfully present in the U.S.

But, on top of that, there are a bunch of so-called hardship exemptions available to you that may make all the tax penalties null and void.  Especially the newest one that says "Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable."  Here's that list:

1. You were homeless.
2. You were evicted in the past 6 months or were facing eviction or foreclosure.
3. You received a shut-off notice from a utility company.
4. You recently experienced domestic violence.
5. You recently experienced the death of a close family member.
6. You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property.
7. You filed for bankruptcy in the last 6 months.
8. You had medical expenses you couldn’t pay in the last 24 months.
9. You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member.
10. You expect to claim a child as a tax dependent who’s been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child. In this case, you do not have to pay the penalty for the child.
11. As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace.
12. You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the Affordable Care Act.
13. Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable.
14. You experienced another hardship in obtaining health insurance.

The last one sounds like the ultimate hardship was having to sign up for ObamaCare on their failing websites. Anyway, that's it.  Not nearly as simple as the $95 penalty that keeps getting bandied about. 


References:

ObamaCare Penalty Calculator (note: Accurate but does not apply the IRS limits): http://www.healthinsurance.org/learn/obamacare-penalty-calculator/

Federal Poverty Levels: http://obamacarefacts.com/federal-poverty-level.php

What if someone doesn't have health care coverage in 2014?: https://www.healthcare.gov/what-if-someone-doesnt-have-health-coverage-in-2014/

How do I qualify for an exemption from the fee for not having health coverage?: https://www.healthcare.gov/exemptions/