This tax year, many taxpayers will notice a new penalty if they chose to opt out of having health care coverage. This is due to new rules under the Affordable Care Act that state that all Americans must have health insurance. The penalties can be quite large. For example, a wealthy family of five can max out the penalty at $12,000 for this tax year. In 2015, the penalty will rise even more, and continue steadily rising even into 2016.
This is the first year the changes made by the passing of the Affordable Care Act in 2010, will go into effect. All health care covered is required to be approved, and Americans must enroll in an approved plan. Those who don’t will have to pay the penalty stated in the Individual Shared Responsibility Provision when they file their taxes.
A majority of Americans receive health insurance from their employer or they have purchased plans through the Marketplace. The government predicts that many who pay the penalty will be wealthier taxpayers who purchase their own insurance, or individuals who want a specific plan that is not approved by the Affordable Care Act.
The “young invincibles”, those young adults in their late 20’s to early 30’s, are also expected to be hard hit by the penalty. It’s assumed that this group would rather spend the money they would use to pay health care premiums on something else, like student loans or debt. This group of taxpayers has a very minimal tax credit, and therefore the amount they would spend on monthly premiums is greater.
For the 2014 tax year, the penalty is assessed at $95 per adult and $47.50 for children under 18 years of age. The penalty caps out at $285 or 1% or your household income, depending on which is greater, and will continue to rise significantly in the coming years.
In 2015, the flat penalty alone will rise to $325/adult, and will rend even higher in 2016, $695/adult. The penalty is assessed at half the adult amount for children under 18. The cap stands at $975 or 2% of your income for 2015, and $2,085 or 2.5% of your income for 2016.
The penalty uses a different standard of income than many are accustomed to. It takes your adjusted gross income, found on the bottom of a 1040, which includes 401 contributions and income earned by children.
There are a few exemptions to the penalty. These include certain religious groups, Native American tribes, prisoners, Medicare beneficiaries, and those uncovered for less than three months.
The penalty begins this year, although it’s expected the IRS will have a hard time deciphering who should be penalized. You can expect to have interest applied to all late penalty payments, but the IRS can’t put a lien on a home or other such measures due to unpaid penalties.
