How Big is the Penalty if You Don’t Get Health Insurance?

By :: November 6th, 2013

Stories about the Affordable Care Act often tell readers that they’ll have to pay a $95 penalty if they don’t get adequate health insurance coverage. But, like a lot of other things I read about the health law, that’s not quite correct. The penalty (which the Supreme Court said is actually a tax) could be less or, more likely, a lot more. It’s a complicated story.

The basic penalty is $95 in 2014—if you’re unmarried with no dependents and your income is less than $19,500. If your income is higher, you’ll owe more: 1 percent of the amount by which your income exceeds the sum of a single person’s personal exemption and standard deduction in the federal income tax. That’s $10,000 in 2013. But be warned: Income equals adjusted gross income (AGI—that number on the last line on page 1 of your tax return) plus any tax-exempt interest and excluded income earned abroad. If you make $30,000, your penalty will be $200.

Still with me? Good, because it is about to get more confusing.

If you’re married or have kids, you’ll owe a minimum of $95 per person for yourself, your spouse, and each dependent over age 17 plus half that amount for each child under 18. But the total can’t exceed three times the basic $95 tax, or $285. Except it can. If 1 percent of your income (minus your and your spouse’s personal exemptions and standard deduction—$20,000 in 2013—plus those add-ons) is more than $285, that’s what you’ll owe. Oh, and you’ll have to include your dependents’ income in the calculation.

But there’s a cap. Your total penalty can’t exceed the national average premium for a bronze-level health policy for your family’s size. We don’t know what that is yet but it’s surely more than $95. CBO projects that the average bronze premium in 2016 will be between $4,500 and $5,000 for an individual plan and more than $12,000 for families. If your income exceeds $1.2 million next year, that ceiling might apply.

That’s just for 2014. The penalty will grow over time: The dollar minimums will be $325 in 2015 and $695 in 2016 and will grow with inflation after that (rounded down to multiples of $50). By 2023, it will hit a projected $800. And the percentage of income penalty also grows—to 2 percent in 2015 and 2.5 percent after that.

Some people won’t have to pay the tax. Even if you don’t have insurance, you’re safe if you have religious objections to health insurance, are an American Indian, are in jail, or are “not lawfully present” in the U.S., among other reasons. You’re also protected if buying insurance would impose economic hardship. That happens if it would cost more than 8 percent of your income (defined slightly differently of course).

If you owe a penalty, you’re supposed to pay it with your income tax return. But there’s not much the IRS can do if you don’t pay. They can’t put you in jail or garnish your wages. In fact, about the only way the IRS can collect is if you’re due a refund. They can deduct the penalty from this year’s and future refunds.

A well-known radio personality is urging people to avoid the penalty by making sure you won’t get a tax refund. Ignore him. Trying this requires many years of careful planning and is easy to mess up. Besides, most Americans love their refunds.

There is, of course, a simpler way to avoid the penalty: Sign up for health insurance.


  1. Ralph H  ::  10:18 am on November 6th, 2013:

    Well, from your simplified explanation I can see where at least a dozen of the thousands of pages in ACA law were devoted to. Sounds like a typical governmentized law with many loopholes, varying penalties and uneven enforcement.

    people need straightforward laws.

  2. Michael Bindner  ::  11:47 am on November 6th, 2013:

    I have an interesting case. My wife and child get health insurance through her job, but I was not added. If I don’t get health insurance (I work a minimum wage job but my wife does not), what will my penalty be? I think I will just get a better job and sign up for Obamacare. More easily said then done. Is TPC hiring?

  3. Jack B  ::  12:23 pm on November 6th, 2013:

    With this much complexity going in to figure your fine (tax) for not being insured, I can see the cost of Turbo Tax going up for 2014.

  4. AMTbuff  ::  2:33 pm on November 6th, 2013:

    This is what happens when the government tries to keep a major income transfer program off-budget.

    I wonder what percent of the total IRS budget will be spent on work related to the health care subsidies and penalty tax.

  5. Pick an Extra Bail of Cotton Slave: Why the ObamaCare Penalty Will Likely Be More Than $95 – Blur Brain  ::  8:25 pm on November 21st, 2013:

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  7. How Big Will Obamacare Penalty Taxes Be? –  ::  9:29 pm on March 6th, 2014:

    […] My TaxVox post last November explained what determines the penalty. For low-income households, it’s a fixed dollar amount: $95 per adult plus $47.50 per child, up to a total of $285. Higher-income families will owe 1 percent of their income (net of specified deductions), up to the average national cost of getting basic (bronze level) insurance coverage for all family members. According to the Urban Institute’s Health Policy Center, that coverage will cost about $3,600 per adult plus $1,900 per child in 2014. […]

  8. How Big Will Obamacare Penalty Taxes Be? | LamboArchie blog  ::  10:48 pm on March 6th, 2014:

    […] My TaxVox post last Nov explained what determines a penalty. For low-income households, it’s a bound dollar amount: $95 per adult and $47.50 per child, adult to a sum of $285. Higher-income families will owe 1 percent of their income (net of specified deductions), adult to a normal inhabitant cost of removing simple (bronze level) word coverage for all family members. According to a Urban Institute’s Health Policy Center, that coverage will cost about $3,600 per adult and $1,900 per child in 2014. […]

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