The voices of Tax Policy Center's researchers and staff
It’s open season again for the Affordable Care Act (ACA), when Americans can sign up for health care, often with the help of large subsidies from the federal government. Millions of people will enroll but millions more won’t and many will have to pay much larger penalties on their 2016 tax returns than during the ACA’s first two enrollment periods.
Congress created the tax penalty—and the Supreme Court ratified it as a tax—as a stick to encourage people to obtain insurance. The ACA is financially viable only if most Americans get coverage. Otherwise, people would wait until they need services before enrolling. It’s not insurance if you buy coverage only when you’re sick.
Many Americans are exempt from the tax, which the law calls a “shared responsibility payment.” But for those who are not, the penalty for lacking coverage was relatively small when the ACA’s marketplaces first went online in 2014. A single person paid the larger of $95 or 1 percent of her income over about $10,000, and even that amount was capped at $2,448, the national average premium for a bronze level plan. Families could owe as much as $285 or 1 percent of their income over an exclusion (with a cap of up to $12,240 for a family of five or more). We won’t know how many people had to pay that penalty until the IRS finishes processing 2014 tax returns.
For 2015, the penalty jumped to the larger of $325 per person (half that per child, with a family cap of $975) or 2 percent of countable income, again with an overall cap—$2,484 per person up to $12,420 for a family. People without adequate coverage who aren’t exempt from the tax will pay that penalty on their 2015 tax returns due next April.
People who lack health insurance for 2016 will owe an even bigger penalty if they aren’t exempt: the larger of $695 per adult (plus $347.50 per child, up to a family cap of $2,085) or 2.5 percent of countable income, with a projected overall maximum of $2,676 per person, up to $13,380 per family. Increasingly, people will find it preferable to pay for insurance, often with subsidies, than to pay the penalty and still lack coverage.
The Tax Policy Center’s ACA Penalty Tax Calculator lets users see how large the penalty would be for each of the three years. Just enter information about an individual or family and the calculator estimates the penalty for not getting insurance.
We don’t know yet whether the tax penalties are encouraging people to obtain health insurance. But we do know that the cost of not getting coverage is growing and more people will do better financially if they choose to buy insurance now for 2016.
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