No Health Insurance - IRS Shows Us How Penalty Is Calculated

w2form-picIf your like me ... you may have thought the IRS penalties imposed for not having health insurance under the new ACA federal healthcare rules simply utilized the greater of 1% or $95 calculation by applying 1% times adjusted gross income.

This week, Ed Oleksiak, JD, Holmes Murphy's national compliance lead, walked our  consulting teams through how the the IRS will apply the penalty.   So the 1% individual penalty is not just 1% times your   income.   You actually subtract a base amount which is the minimum thresholds for being required to file a tax return determined by filing status and then the 1% is multiplied times the resulting net income amount.   The starting amount is household income.   We are including a definition and example below.

Household income is the adjusted gross income from your tax return plus any excludible foreign earned income and tax-exempt interest you receive during the taxable year. Household income also includes the incomes of all of your dependents who are required to file tax returns.

Example: Single individual with $40,000 income

Jim just plain does not like politics or federal mandates.   He is an unmarried gun-toting, iPhone 5s carrying young invincible   with no dependents.   He pays service fees each month to access his   account ... but feels paying monthly health insurance premiums does not help him with the ladies.   Jim  does not have minimum essential coverage for any month during 2014 and does not qualify for an exemption. For 2014, Jim's household income is $40,000 and his filing threshold is $10,150.

To determine his payment using the income formula, subtract $10,150 (filing threshold) from $40,000 (2014 household income). The result is $29,850. One percent of $29,850 equals $298.50.

Jim's flat dollar amount is $95.

Because $298.50 is greater than $95 (and is less than the national average premium for bronze level coverage for 2014), Jim's shared responsibility payment for 2014 is $298.50, or $24.87 for each month he is uninsured (1/12 of $298.50 equals $24.87).

Jim will make his shared responsibility payment for the months he was uninsured when he files his 2014 income tax return, which is due in April 2015.

2014 Federal Tax Filing Requirement Thresholds

Filing Status


Must File a Return If Gross Income Exceeds


Under 65


65 or older


Head of Household

Under 65


65 or older


Married Filing Jointly

Under 65 (both spouses)


65 or older (one spouse)


65 or older (both spouses)


Married Filing Separately

Any age


Qualifying Widow(er) with Dependent Children

Under 65


65 or older