Calculating The Penalty for Not Having Health Insurance

Under the Affordable Care Act (ACA), individuals and families who don't have qualifying health insurance may face a penalty when they file their federal taxes. This penalty is designed to encourage people to obtain health coverage. This guide explains how the penalty is calculated, who is affected, and what you can do about it.

How the Penalty is Calculated

The penalty for not having health insurance is calculated based on your household size and income. The formula for the penalty is:

Penalty Formula

Penalty = (Household Size × $970) + (Income Percentage × $970)

Where Income Percentage = (Income - (Household Size × $15,000)) / (Household Size × $5,000)

The penalty is calculated per household, not per individual. The base penalty is $970 per person in the household. Additional penalties apply if your income is above a certain threshold.

Key Assumptions

Penalty applies to tax years 2014-2022
Household size is the number of people living in your home
Income is your total household income for the year
Penalty is added to your federal tax bill

Who Gets Penalized

The penalty applies to most individuals and families who don't have qualifying health insurance. Here are the key groups affected:

Individuals who are not covered by employer-sponsored insurance
Individuals who don't qualify for an exemption
Families where none of the members have qualifying coverage
People who don't qualify for Medicaid or the Children's Health Insurance Program (CHIP)

There are several exemptions that may prevent you from being penalized, including:

Having coverage through an employer
Being enrolled in Medicare
Having coverage through a spouse's employer
Having coverage through COBRA
Being incarcerated

Penalty Amounts

The penalty amount varies based on household size and income. Here's a table showing the penalty amounts for different household sizes:

Household Size	Base Penalty	Additional Penalty (if income > threshold)
1 person	$970	$970 per 5% of income above $15,000
2 people	$1,940	$970 per 5% of income above $30,000
3 people	$2,910	$970 per 5% of income above $45,000
4 people	$3,880	$970 per 5% of income above $60,000
5 people	$4,850	$970 per 5% of income above $75,000

For example, a single person with an income of $25,000 would owe $970 in penalties. A family of four with an income of $70,000 would owe $3,880 + $970 = $4,850 in penalties.

How to Pay the Penalty

The penalty is paid as part of your federal income tax return. You'll need to:

File your federal income tax return
Include the penalty amount on Form 8965
Pay the penalty along with your other taxes

You can pay the penalty through the same methods you use to pay your taxes, including direct payment, electronic funds transfer, or by mail.

Payment Options

You can pay the penalty with a credit or debit card, electronic funds transfer, or by mail. The IRS will send you a bill if you don't pay electronically.

Penalty Exemptions

There are several situations where you may not have to pay the penalty:

You have qualifying health insurance
You qualify for an exemption (e.g., hardship, religious beliefs)
You are enrolled in Medicare
You are incarcerated
You are a member of a recognized religious sect that objects to health insurance

If you qualify for an exemption, you must file Form 8965 with your tax return to avoid the penalty.

FAQ

When does the penalty apply?

The penalty applies to tax years 2014 through 2022. It does not apply to tax years before 2014 or after 2022.

How do I know if I have to pay the penalty?

You must pay the penalty if you don't have qualifying health insurance and don't qualify for an exemption. You can use the calculator on this page to estimate your penalty.

Can I pay the penalty in installments?

Yes, you can pay the penalty in installments through the IRS's payment plan program. You'll need to apply for a payment plan and meet the eligibility requirements.

What happens if I can't pay the penalty?

If you can't pay the penalty, you may qualify for an installment agreement or other payment options through the IRS. You should contact the IRS for assistance.

Is the penalty tax deductible?

No, the penalty is not tax deductible. It is an additional amount you owe to the IRS as part of your tax liability.