A Basic Explanation

The Affordable Care Act (ACA) requires most Americans to have health coverage. If you’re required to buy health insurance and you don’t buy it, you’ll have to pay a fine called the individual shared responsibility payment when you file your taxes.

Some people are exempt from the mandate. If you’re not exempt, you must purchase insurance or pay the fine.

If you’re thinking about going without insurance (most likely to save money), you might want to know what your penalty will be before you decide. To get an estimate, use our tax credit estimator.

Expert Advice About the Health Insurance Tax Penalty

If you’re thinking about paying a penalty fee rather than buying health insurance, you may want to run the numbers. Do a little research and compare the cost of the penalty with the cost of health insurance in your area. In many cases, purchasing health coverage could cost the same, or even less, especially with tax credits. And then you’ve got something to show for your money in the event of an accident or unexpected illness.

What else you need to know

Some people won’t have to pay the penalty.

Those who have a very low income, belong to certain religious sects, or have recently experienced a hardship such as bankruptcy or domestic violence may be exempt from the requirement to have health insurance and won’t have to pay a penalty. If buying health coverage or paying the penalty would be a financial hardship, you also may qualify for a hardship waiver. (Note: There are specific rules regarding who qualifies for a hardship waiver.)

If you’re not exempt, you will be subject to the penalty for not having health insurance. (In actuality, most people won’t pay a penalty because they already have some type of health insurance that meets ACA requirements.)

If you owe a penalty, you’ll pay it when you file your taxes. The penalty will be assessed when you submit your tax return for the previous year. When you file your return, you’ll tell the government how much money you earned, whether or not you had health insurance, and whether you believe you qualify for an exemption. They’ll use this information to determine what, if any, penalty you owe.

There are two ways to pay the penalty if you owe one.
If the IRS determines you’re someone who should have purchased health insurance and didn’t, you’ll have to pay a fine.

  • If you’re getting a tax refund, the fine will be deducted from the money the government was going to pay you.
  • If you owe taxes to the government, the fine will be added to what you owe.

If you owe a penalty, it may be prorated.
Even if you have coverage for only part of the year, the amount of the fine is prorated based on your number of months without coverage. (Note: You may have to pay a penalty if you have more than one gap in coverage or if you aren’t covered for more than three months.)

There’s a cap on the penalty.
The most the 2014 penalty can be is $2,448 for individuals and $12,240 for a family — the average cost of a bronze plan. This means that for most people it’s cheaper to buy health insurance than pay the penalty.