Remember, Obamacare mandates that you either have an approved insurance plan OR pay a penalty/fine/tax. The 2014 tax year was the first year year the penalty was assessed. This coming tax year, the penalty increases, and for tax year 2016, the penalty increases even more. Here’s how the penalty works:
“Your tax is the greater of either 1) a flat-dollar amount based on the number of uninsured people in your household; or 2) a percentage of your income (up to the national average cost of a Bronze plan , as determined by the IRS and adjusted annually to reflect changes in premiums).
This means wealthier households will wind up using the second formula. For example: in 2016, an individual earning less than $37,000 would pay just $695 (flat-dollar calculation) while an individual earning $200,000 would pay about $4,750 (2.5% of his income above the tax filing threshold). (Hat tip to the Congressional Research Service.)
1) Flat-dollar amount
In 2014, the flat-dollar penalty is $95 per uncovered adult (rising to $325 in 2015, and $695 in 2016) plus half that amount for each uninsured child under age 18. Your total household penalty is capped at three times the adult rate, no matter how many children you have. In 2014, that’s $285 ($975 in 2015, and $2085 in 2016).
2) Percentage of income
In 2014, the penalty is 1 percent (rising to 2 percent in 2015, 2.5 percent in 2016). The penalty is capped at the average cost of a Bronze plan, which for 2015 is $2,484 for an individual and $12,420 for a family of five; this cap will adjust annually. Wealthy households will be happy to know that they will pay a penalty only on that portion of their adjusted gross income “above and beyond their filing threshold,” explains the Center on Budget Policy and Priorities‘ Judy Solomon.”