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What’s my penalty?

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A question that comes up time and time again with the Affordable Care Act is:  “How does the Individual Responsibility (aka Mandate) Penalty work?”

To avoid the penalty you must enroll in a marketplace plan OR have private coverage no later than March 31st, 2014. If you do not, below are a breakdown of the penalties you will face.

  • 2014: Greater of $95      per adult and $47.50 per child under age 18 or 1% of household       income
  • 2015: Greater of $325      per adult and $162.50 per child under age 18 or 2%
  • 2016: Greater of $695 per adult and      $347.50 per child under age 18 or 2.5% of taxable gross income capped      at the average bronze-level insurance premium (60% actuarial) rate for the      person’s family.

**The total family penalty is capped at 300% of any annual flat dollar amount for those 18 and over.

**If the penalty applies for less than a full calendar year, the penalty will be 1/12 of the annual amount per month without coverage.

Example:

Let’s look at the O’Brien family of 4 that has 2 children under the age of 18 and the family household income is $100,000 per year.

Just to make the example easier, we are giving everyone names….Meet the O’Brien Family:  Mom – Samantha; Father – Mark; Son – Luke; Daughter – Sarah

Upfront we know that the Max Penalty the O’Brien’s’ can be given is:  $570 (this is figured by a $95 penalty each for Samantha & Mark since they are the only ones over 18 x 300%), now let’s look at the breakdown if they would hit the Max Penalty….

Remember, it is the GREATER of the below up to the Max Penalty:

Flat dollar amount penalty calculation :  $95 (Samantha) + $95 (Mark) + $47.50 (Luke) + $47.50 (Sarah) = $285

Percentage amount penalty calculation:  1% of $100,000 = $1000

Results:  Since the Max Penalty the O’Brien family can be given in this example is $570, this will be the penalty they will be responsible for, since the 1% of household income exceeds this amount.  This amount will be tacked on when Samantha and Mark’s taxes are calculated at the end of the year, so if they were planning on a nice refund this year, that will be deducted from that refund.  Keep in mind that if the O’Brien’s do not pay taxes, as of now, there is no mechanism to collect this penalty.


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