THE INDIVIDUAL MANDATE AND POSSIBLE PENALTIES FOR LACK OF COVERAGE
This is part 1 of an ongoing series that will break down the different provisions of the new Affordable Care Act. The goal will be to educate taxpayers on ways the Act will affect them so that they may plan more effectively.
We begin by examining a provision of the Act that received a lot media coverage as the law was being put together – The Individual Mandate.
Effective January 1, 2014, an individual must either maintain minimum essential coverage (MEC) for their own health care or pay a shared responsibility payment (penalty) on their current year’s tax return. The penalty for the 2014 tax year for failing to maintain MEC is calculated in one of 2 ways. You will pay whichever amount is larger.
(1) 1% of your yearly household income. The maximum penalty under this option is the national average yearly premium for a bronze plan, OR
(2) $95 per person for the year ($47.50 per child under 18). The maximum penalty under this option is $285 per family.
This penalty applies on a per month basis. If you lack MEC for only part of the year then 1/12th of the penalty applies for every month you lacked coverage. If you’re uninsured for less than 3 months of the year you don’t have to pay the penalty.
These fees will increase in 2015 and then again in 2016. For 2015 the fees increase to 2% of yearly income or $325 per person whichever is greater. In 2016 its 2.5% of income or $695 per person whichever is greater.
Check out part 2 of our Guide to the Affordable Care Act where we will discuss the Exemptions to the Individual Mandate.