Q: How much will the “tax” penalty be for going without health insurance?
A: The minimum assessment will be $695 per person (but no more than $2,085 per family) in 2016, when fully phased in. The amount can be higher depending on income. But there are exemptions for low-income persons and others.
For once, we’re asking this question of ourselves, knowing that our readers will be curious about it now that the Supreme Court has upheld the key portions of the Affordable Care Act. We’ll also ask and answer these questions:
- Is it a tax or a penalty?
- If I choose to go without health coverage, how much will I have to pay?
- Who will collect it?
- What if I am covered for only part of the year?
- What if I refuse to pay?
- Are there exemptions?
- How many people will pay?
Let’s take those questions in order.
Is It a Tax or a Penalty?
We will be using the terms interchangeably from now on. Whatever you call it, it’s the functional equivalent of a tax, and the Supreme Court has ruled that it is an exercise of the taxing power of Congress.
The law labels the assessment a “penalty” (see Section 5000A) and avoids using the term “tax.” But Chief Justice John Roberts, writing for the five justices in the majority, said the penalty can be considered a tax that is within the power of Congress to impose.
His reasons are set out starting on page 33 of the opinion. Among other things, Roberts concluded that the penalty was not intended to be a criminal fine, because those who choose to pay it, rather than honor the mandate to obtain health insurance, would be in full compliance with the law. He also noted that the amount is not prohibitively high:
Chief Justice John Roberts: [F]or most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more.
Update, March 18, 2014: A handy calculator is now available at the nonpartisan Tax Policy Center, allowing individuals and families to estimate how much their tax penalties will be if they go without approved insurance coverage in 2014 or later years. The penalty varies based on such factors as income, number of dependents and their ages, and filing status.
The minimum amount — per person — will be $695 once the tax is fully phased in. But it will be less to start. The minimum penalty per person will start at $95 in 2014, the first year that the law will require individuals to obtain coverage. And it will rise to $325 the following year.
Starting in 2017, the minimum tax per person will rise each year with inflation. And for children 18 and under, the minimum per-person tax is half of that for adults.
However, the minimum amount per family is capped at triple the per-person tax, no matter how many individuals are in the taxpayer’s household. So, for example, a couple with one child over 18 (or two children age 18 or under), and no coverage, would pay a minimum of $285 in 2014, $975 in 2015 and $2,085 in 2016. And that would be the minimum no matter how many uninsured dependents a taxpayer has.
The tax would be more for persons with higher taxable incomes. When phased in, it will be 2.5 percent of household income that exceeds the income threshold for filing a tax return. For 2011, those thresholds were $9,500 for a single person under age 65, and $19,000 for a married person filing jointly with a spouse. So, to give a rough calculation, a couple with $100,000 of income might pay a tax of $2,025 if they choose to go without coverage.
But the penalty can never exceed the cost of the national average premiums for the lowest-cost “bronze” plans being offered through the new insurance exchanges called for under the law. We have no way of knowing what that average rate might turn out to be in 2014, but there is reason to think it could be quite high. For example, the total cost of a basic Government Employees Health Association plan currently offered through the Federal Employee Health Benefit program (the model for the state insurance exchanges) totals $9,459 per year for a family plan, and $4,159 for individual coverage.
Update, June 29, 2012: The cost of a “bronze” plan could be higher, however. In January 2010 the nonpartisan Congressional Budget Office issued this estimate:
CBO, Jan. 11, 2010: Overall, CBO estimates that premiums for Bronze plans purchased individually in 2016 would probably average between $4,500 and $5,000 for single policies and between $12,000 and $12,500 for family policies.
CBO has not issued any new estimate since that one, according to spokeswoman Deborah Kilroe.
The penalty will be collected by the Internal Revenue Service, which is one reason the chief justice cited for considering it to be a tax. In fact, the penalty is spelled out in Title 26 of the U.S. Code — the “Internal Revenue Code” — under Subtitle D — “Miscellaneous Excise Taxes.”
A tax is assessed for each month that a person is not covered. It is pro-rated, so that a person who is not covered for only a single month would pay 1/12th of the tax that would be due for the full year.
So, for example, the minimum tax per person for failing to get coverage would be $7.92 for each month of 2014, $28.75 for each month of 2015, and $57.92 for each month of 2016, when fully phased in.
Refusal to Pay
The law prohibits the IRS from seeking to put anybody in jail or seizing their property for simple refusal to pay the tax. The law says specifically that taxpayers “shall not be subject to any criminal prosecution or penalty” for failure to pay, and also that the IRS cannot file a tax lien (a legal claim against such things as homes, cars, wages and bank accounts) or a “levy” (seizure of property or bank accounts).
The law says that the IRS will collect the tax “in the same manner as an assessable penalty under subchapter B of chapter 68” of the tax code. That part of the tax code provides for imposing an additional penalty “equal to the total amount of the tax evaded, or not collected.” It also requires written notices to the taxpayer, and provides for court proceedings.
So it may turn out that the IRS will be suing those who fail to pay the tax for double the amount. But so far, the IRS has not spelled out exactly how it will enforce the new penalty with the limited power the law gives it.
The law makes a number of exemptions for low-income persons and hardship cases.
“Individuals who cannot afford coverage”: If an employer offers coverage that would cost the employee more than 8 percent of his or her household income (for self-only coverage) that individual is exempt from the tax.
“Taxpayers with income below filing threshold”: Also exempt are those who earn too little to be required to file tax returns. For 2011 — as previously mentioned — those thresholds were $9,500 for a single person under age 65, and $19,000 for a married person filing jointly with a spouse, for example. The thresholds go up each year in line with inflation, so those cut-offs will be higher in 2014, when the tax first takes effect.
“Hardships”: The Secretary of Health and Human Services is empowered to exempt others that she or he determines to “have suffered a hardship with respect to the capability to obtain coverage.”
Update, Dec. 20: Health and Human Services Secretary Kathleen Sebelius used her authority on Dec. 19 to add a new category of those eligible for a temporary hardship exemption. It’s No. 13 on HealthCare.gov’s list of exemptions: “Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable.” She carved out the exemption after millions of people on the individual market had their plans cancelled, despite President Obama’s promise — which proved to be false — that “you can keep your plan.”
Other exemptions: Also exempt are members of Indian tribes, persons with only brief gaps in coverage, and members of certain religious groups currently exempt from Social Security taxes (which as we’ve previously reported are chiefly Anabaptist — that is, Mennonite, Amish or Hutterite).
How Many Will Pay?
In his opinion, Chief Justice Roberts cited an estimate from the nonpartisan Congressional Budget Office that 4 million would pay, and cited that as a further reason to consider the assessment a tax rather than a penalty. “Congress did not think it was creating four million outlaws,” he suggested.
However, since then, CBO has increased its estimate. In an estimate released in March of this year, CBO projected that the tax would yield $6 billion for the government, up from the $4 billion it estimated two years earlier. That’s a 50 percent higher total, and would seem to imply that CBO now expects about 6 million will be paying. But CBO didn’t give a specific figure for the number of persons it now expects to pay.
— Brooks Jackson
Pettit, Carol A. and Edward C. Liu. “The PPACA Penalty Provision and the Internal Revenue Service.” Congressional Research Service. 30 Apr 2010.
United States Supreme Court. National Federation of Independent Businesses et al. v. Sebelius. 28 Jun 2012.
26 USC § 5000A – “Requirement to maintain minimum essential coverage.” Cornell University Law School Legal Information Institute. Undated. Accessed 28 Jun 2012.
Internal Revenue Service. “Table 1: 2011 Filing Requirements Chart for Most Taxpayers” Publication 501. Undated. Accessed 28 Jun 2012.
U.S. Office of Personnel Management. “Non-Postal Premium Rates for the Federal Employees Health Benefits Program.” Undated. Accessed 28 Jun 2012.
26 USC § 6672. “Failure to collect and pay over tax, or attempt to evade or defeat tax.” Cornell University Law School Legal Information Institute. Undated. Accessed 28 Jun 2012.
Henig, Jess. “ ‘Dhimmitude’ and the Muslim Exemption.” FactCheck.org. 20 May 2010.
Congressional Budget Office. “Payments of Penalties for Being Uninsured Under the Patient Protection and Affordable Care Act.” 22 Apr 2010.
Congressional Budget Office. “Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act.” 13 Mar 2012.