If 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 those who are thinking of opting out, here’s what you need to know.
For 2014, the penalty is either a flat amount or 1% of your income, whichever is greater. The flat amount is $95 per adult and half that for children under 18, with a cap of $285 per family.
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. The maximum penalty if calculated as a percentage of income is $12,240.
For 2015, the percentage-of-income penalty rises to 2%. The flat amount increases to $325 per adult, and $162.50 per child up to a maximum of $975. The maximum percentage penalty would be approximately $13,400.
For 2016, the percentage of income increases to 2.50%. The flat amount rises to $695, and $347.50 per child up to a maximum of $2,085. The maximum penalty could be as high as $14,800.
Remember Your Maximum Penalty is the Flat Penalty or Your Percentage of Income, Whichever is Greater.
Calculating Household Income to Determine the Penalty
• “Household income” is defined differently from other tax thresholds. It begins with adjusted gross income, or AGI, the number at the bottom of the first page of the 1040 form. (This number includes reductions for 401(k) contributions and other items, but not for itemized deductions such as mortgage interest.) AGI earned by children counts as well.
• To this total the taxpayer adds back any foreign-earned income and municipal-bond income that has been exempted, and then subtracts the filing threshold—the amount below which a taxpayer needn’t file a return.
• In 2014, that’s $10,150 for most singles and $20,300 for most joint filers. The result is household income, the base for figuring the penalty.
If you have questions, please call the author John W. Barrett at (626) 797-4618.
