ObamaCare Tax Penalties: What Are They Exactly?


Click here fore 2017 updates on ObamaCare penalties and IRS debts.


Over the last several months, a lot has been said about the state of healthcare in this country. Let’s be honest, very little of it has been positive. Words like: “broken”, “unstable”, and “confusing on a good day” come immediately to mind. Did we mention that this describes a supposed “affordable” solution?


As the 2014 tax season looms, it is eclipsed by an even bigger shadow. This is the first year that the ObamaCare tax penalties are in play; a fact which leaves nearly 4 million uninsured Americans wondering what their refusal of coverage will cost them. We will try to provide a straightforward, informative, and user-friendly answer to this question; which is more than can be said for a certain website that, for the sake of everyone’s sanity, will remain nameless.


A Three-Year Breakdown of the ObamaCare Tax Penalties

The first thing that taxpayers need to be aware of is how these penalties are structured. They are designed to be phased-in over a three-year period that runs from 2014 to 2016.


The Affordable Healthcare Act comes with a less-than-helpful formula included in the written policy. This formula is used to calculate the ObamaCare tax penalties owed by each individual taxpayer who is non-exempt and uninsured. Yes, qualifying dependents under the age of 18 are penalized at a discount; half the amount that a qualifying individual taxpayer will owe. The penalties are assessed and collected by the IRS as part of the federal income tax process.​​


The penalties are based on a national average for the cost of a healthcare premium. Meaning; that a taxpayer cannot be forced to pay more than it would have cost to select a plan in the first place. For many independently-minded taxpayers, the fact that there’s a cap on the ObamaCare tax penalties constitutes the first good news they’ve heard about affordable healthcare thus far.


Sorry to be the one to say it, but the reprieve is temporary at best.


Paying Uncle Sam His Due: Options #1 and #2

According to the parameters of the policy, there are two ways to pay the calculated penalty:

  • A flat dollar amount
  • A percentage of the total taxable income


Keep in mind; these penalties aren't fixed. Even after 2016, they are subject to increases due to inflation.


The current flat rate picture looks something like this:

  • $95 in 2014
  • $325 in 2015
  • $695 in 2016


For a couple with one dependent child, that translates to $1,737 in ObamaCare tax penalties by 2016.


Broken down into percentages, it looks like this:

  • 1% of taxable income in 2014
  • 2% of taxable income in 2015
  • 2.5% of taxable income in 2016


If income totals $50,000, that individual would pay 1% of the difference between their income and the taxable threshold for the year; an estimated $400 in 2014.


There are exceptions; more specifically, exemptions.


They are:

  • The state health insurance exchange doesn’t offer a qualifying premium below 8% of an individual’s AGI
  • Income is below tax filing threshold
  • Individual has obtained a hardship waiver
  • Individual obtained healthcare coverage in under three months after January 1, 2014
  • There's a recognized religious objection or membership in a healthcare sharing ministry
  • Individual is a member of an Indian Tribe;
  • Individual is incarcerated or not legally present in the United States (while expats may have to worry about unreported bank accounts, they are free of ObamaCare!)