The Affordable Care Act (ACA) requires most individuals to obtain minimum essential health coverage or pay a penalty, with some exceptions. The penalty increases each year. Phil Galewitz reports in Kaiser Health News the average household penalty will be $661 for 2015 and $969 for 2016. Those are averages . . . . Here’s how the penalties are actually calculated in 2015 and 2016.

The amount of the fee is calculated two ways: (1) per person in household method and (2) percentage of household income method. The individual owes whichever result is higher. There is a maximum for each method.

• Using the per person method, the payment is only owed for the people in the household who don’t have insurance coverage.
• Using the percentage method, only the part of household income that’s above the yearly tax filing threshold is counted ($10,150 for individuals, $20,300 for couples filing jointly in 2014, the most recent year available).

The fee for not having health insurance in 2015 is the higher of:

Per person method:

• $325 per adult per year
• $162.50 per child under 18
• Maximum: $975 per year

OR

Percentage of income method:

• 2% of household income
• Maximum: $2,484 per year per individual; $12,420 per year for a family of five or more. These amounts are based on the national average yearly premium for a Bronze plan sold through the exchange.

The fee for not having health insurance in 2016 will be the higher of:

• $695 per adult per year
• $347.50 per child under 18
• Maximum: $2,085 per year

OR

• 2.5% of household income
• Maximum: National average yearly premium for a Bronze plan sold through the Exchange, which has not yet been determined for 2016.

What if someone had health coverage in some months, but not in others?
If someone has coverage for part of the year, the fee is 1/12 of the annual amount for each month without coverage. For an adult, this would be $27.08 per month in 2015. If someone is uncovered for only one or two months, there is no penalty.

[Related: Health Insurance Exchanges | Benefit Bits Video]

When will the penalty have to be paid?
The penalty is to be paid when an individual files a federal tax return. People owing a penalty for not having insurance coverage in 2015 would pay the penalty when they file their 2015 federal tax returns.

What if someone does not pay the penalty?
If a person does not pay the penalty owed, the IRS will deduct it from any tax refund due. If there is no refund sufficient to cover the penalty, the IRS may deduct it from tax refunds in future years. An individual will not be subject to levy, lien, or criminal charges for failure to pay this penalty.

[Related: Overview of Exchanges E-Learning Course]

Will an employee who accepts employer-sponsored coverage have to pay a penalty?
Employees who receive minimum essential health coverage through their employer would satisfy the requirement to have health coverage and would not owe a penalty. However, some employees who are offered coverage from an employer do not accept it and might not obtain coverage anywhere else. In addition, spouses and dependents must obtain health coverage or a fee will be owed on their behalf.

Resources:

If you don’t have health insurance: How much you’ll pay, HealthCare.gov website as visited December 3, 2015
The Individual Shared Responsibility Payment – An Overview, IRS Health Care Tax Tip 2014-04, March 20, 2014
Revenue Procedure 2015-15, IRS, January 16, 2015

Lois Mathis-Gleason, CEBS
Manager, Reference/Research Services at the International Foundation