Healthcare

2015 Marks Jump in Tax Penalty for Not Having Health Insurance

2015 Marks Jump in Tax Penalty for Not Having Health Insurance

With the passage of the Affordable Care Act, families and individuals began being charged a penalty for not having a minimum essential health insurance policy for each family member. This penalty went through a phase-in process, and the amount that was owed in 2014 has increased dramatically for 2015.

The calculation for 2015 is fairly straightforward: in order to figure it out, you simply need to know the family's household income and tax filing threshold and subtract one from the other, then multiply by 2 percent. The result is then compared to the flat dollar penalty amount, and the greater of the two numbers is the penalty that is owed.

The flat dollar amount for 2014 was $95 for each adult in the family and $47.50 for each child under the age of 18. The total for the flat dollar amount could not exceed $285 in 2014. That number was then compared to 1 percent of household income minus the tax-filing threshold amount and the greater of the two represents the penalty owed. In 2015 each of those numbers rose significantly. The flat dollar penalty amount for each adult is increasing to $325, and the amount for each child under the age of 18 increases to $162.50. The total flat dollar amount for 2015 cannot exceed $975. That number is now compared to 2 percent of household income minus the tax-filing threshold amount, with the greater of the two representing the penalty owed.

In order to figure out which of the two numbers (the flat dollar amount or the household income calculation) is the amount owed, it is necessary to figure out what your household income is. Household income is calculated by adding up the modified adjusted gross income (your regular adjusted gross income, your untaxed Social Security benefits, the amount of any foreign earned income exclusions and all non-taxable dividends and interest) of every member of the family that you file a tax return for and that you can claim a dependent exemption for. This includes teenaged children who earn enough money to require that a tax return be filed, but who are still claimed as dependents.

After adding all of these income amounts, you then add up the standard deduction and personal exemptions for the filer and the filer's spouse, and subtract that amount from the household income. Whatever that calculation comes to is then multiplied by two percent, and that number is then compared to the flat dollar amount penalty for the family. Whichever is greater is the amount owed.

For an example of how to do the calculation, consider a family of four: a husband and wife and their two children ages 17 and 11. The husband and wife together have a household income of $93,000. The 17 year old has a part-time job at which she earns $7,000 per year, and the 11 year old babysits but only makes about $400 in a year. This brings the family's household income to $100,000. The tax-filing threshold would be $20,600, representing the $12,600 deduction for married couple filing jointly and $4,000 for each of the adults for personal exemptions. The exemptions for the children are not included in determining the filing threshold. Subtracting $20,600 from the $100,000 yields $79,400; multiplying $79,400 by 2 percent yields $2,382.00. The flat penalty amount for the family would be $325 for each adult ($650) and $162.50 for each child ($325) for a total of $975, which is also the maximum flat penalty amount. The $2,382.00 is the greater amount by far, and would be the amount owed.

In the example shown above, it is assumed that the family did not have minimum essential health insurance for the full year and did qualify for a penalty exemption. If the family has insurance for a portion of the year, the penalty is applied monthly by dividing the amount by 12 and then multiplying that number by the number of months that they were without insurance.

If your family was uninsured for all or a portion of the year and you require assistance in determining your tax penalty, contact our tax professionals for assistance.

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Lee Reams, BSME, EA

Lee Reams, BSME, EA

Editor-in-Chief

Besides his role at CountingWorks as an educator and speaker to thousands of accountants nationwide, Lee manages a technical research service for a large group of tax accountants which sharpens his technical skills. Lee served on the Board of Blackline Systems, is a former Board of Director for the California Tax Education Council, is a Past President of the San Fernando Valley Chapter of Enrolled Agents, Member and Past Director for the California Society of Enrolled Agents.

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