Paul L. Caron

Monday, September 29, 2014

Penalty for Opting Out of the Affordable Care Act Is Large ($12,240) and Growing

Wall Street Journal Tax Report:  Penalty for Not Having Health Coverage Can Be Thousands of Dollars; The ACA Penalty Can Top $12,000 for a High-Income Family of Five, by Laura Saunders:

ObamaCareIf you're opting out of the health-care coverage required by the Affordable Care Act, make sure you understand how much you'll owe Uncle Sam as a result.

For a family of five, the penalty could be as high as $12,240 for the 2014 tax year, experts say. And for many people, the penalty will rise sharply in 2015 and 2016.

The massive health-care changes passed in 2010 are phasing in, and this is the first year most Americans must have approved health insurance. Those who don't will owe a penalty under the Individual Shared Responsibility Provision. It's due with your income taxes, payable by April 15, 2015.

While most people will probably obtain qualified health coverage through an employer or an exchange, there will be others who owe the penalty. Eddie Adkins, a health-care and benefits specialist at Grant Thornton in Washington, says this group will likely include affluent and wealthy people who want to self-insure or use a so-called nonconforming policy that doesn't meet Affordable Care Act standards.

Then there are the "young invincibles": healthy young adults, typically in their late 20s or early 30s, who will get little or no tax credit to reduce their premiums. Many would rather spend the cost of health coverage, which can run from several hundred to several thousand dollars a year, on something else, such as paying off college loans.

For those who are thinking of opting out, here's what you need to know.

To begin with, the penalty is either a flat amount or 1% of your household income, whichever is greater. For 2014, the flat amount is $95 per adult and half that for children under 18, with a cap of $285 per family.

The flat penalty rises steeply in the future, to $325 per adult in 2015 and $695 in 2016, plus half that per child, up to a maximum of $975 in 2015 and $2,085 in 2016.

The percentage-of-income penalty rises quickly as well—to 2% of income in 2015 and 2.5% in 2016. As with the flat penalty, there is also a cap on the maximum payment. It rises no higher than the average cost for a family of five under a bronze-level Affordable Care Act-approved plan. ...

Although taxpayers without proper health coverage will owe the tax penalty in April, the IRS will have a hard time identifying them. It will get easier in 2016, when insurers and employers will be required to send the IRS computer files of participants that can be matched against individual returns for tax year 2015.

Even then, the IRS won't be able to use standard collection procedures. For example, the agency can't put a lien on a taxpayer's house because of an unpaid health-care penalty. However, interest will be owed on any unpaid penalties, and the total can be withheld from future tax refunds.

IRS News, Tax | Permalink


It seems misleading to use the term "opt-out" in this manner as if to suggest that people were automatically given health insurance and then chose to do something proactively that made them subject to the penalty. The opposite is actually true. If people simply fail to purchase health insurance, an act of omission, then the penalty applies. If I don't choose take a trip to Hawaii this year I didn't necessarily "opt-out" of a Hawaiian vacation.

Posted by: John S. Treu | Sep 29, 2014 4:39:44 AM

I expect more of our clients to shift income to S-Corp.s or LLCs, significantly reducing personal income, a.k.a.: price-transfers. Example, the auto, company "uniform", tools, technology, every imaginable expense becomes a company expense to reduce personal income and qualify as a semi-poor person.
Problem, personal balance sheets begin to reveal a faux cash flow affecting FICO credit ratings.

Posted by: Scot | Sep 29, 2014 9:54:37 AM

Never getting it and never paying IRS a penny end of story im not there property.

Posted by: grego | Sep 29, 2014 2:42:21 PM