Penalty for No Health Insurance

In 2014, Benjamin Miller from Indiana posted a tweet that included a picture of notice he received from the IRS indicating that he owes a penalty of $2,344 because he didn’t have health insurance.  Needless to say, his tweet went viral and ignited a firestorm.

In his post, he indicated that the reason he didn’t buy health insurance was because his premiums jumped by over $1,000 to $1,400 per month. Of course the increase in Mr. Miller’s insurance premiums were most likely due to the mandatory provisions included in the health plan that were needed to meet the minimum essential coverage requirements of the Affordable Care Act (ACA).

Like many uninsured taxpayers, he probably didn’t fully read nor understand the penalty provisions, which are understandable, due to the fact that the provisions were written by attorneys.

What he and no doubt thousands of other taxpayers overlook when making the decision whether to buy insurance was the fact the penalty was the HIGHER of two computations, the flat dollar amount and the percentage of income amount. The flat dollar amount for 2014 was $95 per adult and $47.50 for a child, with a maximum of $285 per family.

This is where lots of people stopped reading and erroneously concluded that the penalty wouldn’t be so bad when compared to the high premiums they were quoted, especially if they were relatively healthy and didn’t feel a great need for insurance coverage. These taxpayers failed to consider the percentage of income penalty amount, which for 2014 is 1% of the taxpayer’s household income after deducting his filing threshold (the sum of the filer’s standard deduction and exemption amount for the filer and spouse, if any).

So even though the penalty was much higher than expected, Mr. Miller did save the difference ($14,456) between the insurance premiums he would have paid and the penalty. Having been shown the penalty amount, we know that Mr. Miller’s income is in excess of $234,400 since the penalty is 1% of his income, and it likely won’t break Mr. Miller’s bank account to pay it.

In 2015, Mr. Miller would be looking at a penalty about double the 2014 amount. The penalty is being phased in over a three-year period and for 2015 the flat dollar amount is $325 per adult and $162.50 per child, with a maximum of $975, while the percentage of income penalty jumps to 2%. Then in 2016 the flat dollar amount will jump to $695 per adult and $347.50 per child (maximum $2,085) with the percentage of income penalty rate at 2.5%. 

If you made the decision to skip health insurance coverage for the upcoming year and paying the penalty, please remember it amounts to the HIGHER of the flat dollar amount or the percentage of income.  Contact our office if you need assistance regarding the no-health insurance penalty.