Recent Tax Updates

Additional Tax (Penalty) for Not Having Health Insurance for 2014

December 3, 2014

The following is a reminder of how the individual shared responsibility payment (penalty or additional tax) for not having health insurance for all or part of the year will be calculated for 2014, as well as how much it increases in 2015.

The individual shared responsibility payment (penalty) will not apply to an individual who qualifies for an exemption that they either obtained from the Marketplace or requested when filing their 2014 federal return.

It is important to remember that the penalty, as explained below, is based on the individual not having insurance for the entire year. If an individual did not have insurance for only part of the year, then the penalty would be pro-rated based on the number of months they did not have health insurance.

The individual shared responsibility payment for 2014 is the greater of:

• 1% of their modified adjusted gross income that exceeds their personal exemption (doubled for married couples filing jointly), plus the standard deduction for their filing status.

  Modified Adjusted Gross Income is Adjusted Gross Income plus:

  • Tax exempt interest
  • Portion of social security income not included in income
  • Foreign earned income and the housing cost of individuals who live abroad

  Therefore, the penalty begins to be calculated once the modified adjusted gross income exceeds:

  • $10,150 for single individuals
  • $20,300 for married couples filing jointly

• Or

• A flat dollar amount of $95 per adult family member age 18 and older and $47.50 for each dependent under age 18. This amount is capped at $285 for 2014.

One percent (1%) of income will begin to exceed the flat dollar amount when an individual’s Modified Adjusted Gross Income exceeds:

• $19,650 for Single individuals
• $39,300 for Married couples with no dependents
• $44,050 for Married couple with one dependent under age 18
• $48,800 for Married couples with two or more dependents under age 18

Put another way, Single individuals subject to a penalty will pay the flat dollar amount when their income is between $10,150 and $19,650. Once their income exceeds $19,650 they will pay 1% of their income.

Married couples subject to the penalty will pay the flat dollar amount when their income exceeds $20,300 and is below the income amounts above based on their family size. Once their income exceeds that amount they will pay 1% of their income.

If the taxpayer owes the individual shared responsibility payment, the payment will be included on their 2014 Form 1040, line 61.

For 2015, the percentage of income increases to 2% and the flat dollar amount increases to $325.

For more information on the individual shared responsibility payment, see the following:

• Individual Shared Responsibility Provision page on the IRS website
• To review how the payment is calculated see the worksheet on page 5 of the draft of the Form 8965 instructions.