Note: The penalty tax will be reduced to $0 beginning with the 2019 plan year.
Beginning January 1, 2014, the Affordable Care Act requires most individuals to demonstrate and maintain proof of “minimum essential coverage” or face a penalty tax. Individuals are said to have “minimum essential coverage” if they have a qualified employer-sponsored plan, individual plan, government-sponsored plan (Medicare, Medi-Cal) or a grandfathered plan.
If a person cannot keep minimum essential coverage, the IRS will collect a tax penalty from him/her. The monthly tax penalty is described as 1/12th of the greater of:
For 2015: $325 per uninsured adult in the household (capped at $975 per household) or two percent of the household income over the filing threshold
For 2016: $695 per uninsured adult in the household (capped at $2,085 per household) or 2.5 percent of the household income over the filing threshold.
After 2016, the penalty will be increased annually by the cost-of-living adjustment.
The penalty will be half of the amount for people under age 18.
Exemptions are granted for financial hardship, religious objections, American Indians, those without coverage for less than three months, illegal immigrants, incarcerated individuals, those for whom the lowest cost plan option exceeds 8% of an individual’s income, and those with incomes below the tax filing threshold.
A grandfathered plan is a health plan that was in place when President Obama signed the new healthcare reform law on March 23, 2010. Grandfathered plans are not required to comply with some of the PPACA provisions.