Health Insurance could be called a “necessary evil”, especially now that it is the law to have coverage in place.
The healthcare law passed in 2010 makes having health coverage mandatory. In fact, if you don’t have coverage, you will have to pay a fee to the government! This will sneak up and bite you when you file your tax return.
If you don’t have coverage in 2015, you will pay the higher of these two amounts:
2% of your yearly household income. (Only the amount of income above the tax filing threshold, about $10,000 for an individual and $13,000 for a family, is used to calculate the penalty.) The maximum penalty fee is the national average premium for a bronze plan. To give you an idea, this maximum penalty amount is $2,484 annually per individual and $12,420 for a family with five or more members (see IRS Revenue Procedure 2015-15).
$325 per person for the year ($162.50 per child under 18). The maximum penalty per family using this method caps out at $975.
So, let’s take a look at the most recent data for median household income in the United States. The latest numbers are for 2013. They show the real median household income to be $52,250 annually.
We will take a look at an annual household income of $52,250 for a family of 4 with both children under the age of 18. Further, let’s say, hypothetically, that standard and other deductions take the AGI (Adjusted Gross Income) down about 20%. This leaves us with an income of $41,800 after all tax deductions.
This would be the health insurance penalty fee for this fictitious family:
$41,800 is the AGI (Adjusted Gross Income)
– $13,000 (tax filing threshold not subject to penalty fee)
= $28,800 Income subject to the Health Insurance penalty fee
2% of your yearly household income
This penalty amount would be $576 ($28,800 X 2%)
$325 per person for the year ($162.50 per child under 18)
This penalty amount would be $975 ($325 X 2 = $650 for the 2 adults, and $162.50 X 2 = $325 for the 2 children)
Since the healthcare law says that the penalty is the higher of these two amount, the penalty for this family of 4 would be $975 for the 2015 tax year. This fee is not tax deductible.
Health insurance may not be evil, but it is becoming necessary. In 2016 and after, the penalty goes to $695 per person ($347.50 per child under age 18) or 2.5% of income whichever is greater.