What's the Penalty for Not Having Health Insurance?

If you prepare individual income tax returns, your clients likely have a lot of questions about the new health insurance law. Under the individual mandate of the Patient Protection and Affordable Care Act, anyone who can afford health insurance must obtain coverage as of 2014. Those who do not obtain coverage may have to pay a health insurance penalty when filing their income taxes. The health insurance penalty is minimal in 2014, but the fee will increase every year.

In 2014, there are two ways to calculate the tax penalty for not having health insurance. Your uninsured clients must pay whichever amount is the greater of the two. The first is a flat fee of $95 per person or $47.50 per child. For a family consisting of two parents and one child, the penalty for not having health insurance would be $237.50. The maximum penalty is $285 when using this method. Some young people are looking at this penalty and deciding to pay it instead of buying health insurance coverage and paying monthly premiums.

The second method involves calculating 1 percent of the taxpayer's yearly household income. Someone with an annual household income of $30,000 would pay a penalty of $300, for example. The maximum penalty assessed using this method is the national average yearly premium for a bronze health insurance plan. The average price of a bronze plan varies significantly by state, so the national average may be a little higher than your clients expect. In Wyoming, the cheapest bronze plan costs an average of $425 per month, while the cheapest bronze plan costs an average of $144 per month in Minnesota.

Because the penalty will increase each year, young people may want to purchase coverage and take advantage of the opportunity to get preventive healthcare instead of paying the fee and getting nothing in return. In 2015, the penalty for not having health insurance will be $325 per person or 2 percent of the taxpayer's yearly household income. This will increase to $695 per person or 2.5 percent of household income in 2016. In future years, the fee will be adjusted for inflation. To avoid paying the fee, taxpayers must have health insurance that meets certain minimum standards. Medicare, Medicaid, CHIP, TRICARE, and plans purchased through the health insurance marketplace all conform to these minimum standards.

Starting in 2014, anyone who does not have minimum essential coverage will have to pay a tax penalty. The penalty will be fairly low at first, but it will increase yearly. Some taxpayers may decide to purchase health insurance instead of paying hundreds of dollars in penalties and receiving nothing in return. As an accounting professional, you must be prepared to answer questions about the penalty and give your clients information about the new health insurance requirements.

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