Would you like to pay something and get nothing in return?
You don't have to go that route, of course. You can forgo insurance and face the penalty, paid at tax-filing time and determined by your income, or purchase a health insurance policy if you don't already have one.
And if you're wondering where your penalty will go, it'll be used to offset costs associated with covering urgent medical care for the uninsured.
Who has to pay the Obamacare penalty?
There are groups of people excused from the mandatory coverage. You won't be required to have health insurance, and the penalty won't be applied, if you:
- Are uninsured for less than three months of the year. (Your penalty would be prorated if you were uninsured at any time during the rest of the year.)
- Live illegally in the U.S.
- Are incarcerated.
- Can't afford coverage, meaning the lowest-cost bronze plan would cost more than 8 percent of your income.
- Are a member of a recognized Native American tribe, religious sect such as Amish, or health-sharing ministry.
- Have an annual income of less than $10,000 per person and $20,000 per family.
Even if you're required to purchase health insurance, you may be eligible for a hardship exemption, which will be automatically available or you'll apply for now or claim during tax-filing time. The exemption won't get you health insurance, but you won't have to pay the penalty. A few examples of people who may qualify are those who recently: were homeless, filed for bankruptcy protection, couldn't pay medical costs or experienced domestic violence.
Want to calculate your subsidy? Use our Obamacare calculator here.
But if you've determined you need health insurance and you decide to purchase it, choose wisely. Obamacare requires health insurance plans to offer "minimum essential coverage," which includes the 10 categories of essential health benefits like free preventive care. The following are just a few examples of plans that will meet standards and count as minimum essential coverage:
- Plans you purchase through the marketplace, which can be accessed at HealthCare.gov.
- Plans sponsored by your employer, which is required in many cases to offer affordable and suitable insurance or pay its own penalty.
- Medicare, Medicaid, or the Children's Health Insurance Program.
How much is your Obamacare penalty?
So, you've reviewed your requirements and you need coverage but decide to skip it.
Two requirements may help you: Your penalty can't be more than the lowest annual cost of a bronze plan offered through the exchange, and the penalties are based on your household income above the "filing threshold." Once your income hits a certain amount, called a threshold, you must file an income tax form. In 2013, that threshold is $10,000 for an individual and $20,000 for a family. You won't be taxed or penalized based on income below this amount.
In the following hypothetical calculation, Henry, a single man whose income is $30,000, decides to forgo health insurance and wants to determine his penalty:
$30,000 - $10,000 = $20,000 x 0.01 = $200
To calculate his penalty for 2014, he uses only income over the filing threshold, and is left with $20,000. Henry multiplies $20,000 by 1 percent to determine his penalty, which will be $200 since it is more than the minimum $95. His penalty grows in 2015 and 2016, and after that, it will increase according to the cost of living.
The tables below show several examples of how penalties will be calculated starting in 2014.
Obamacare penalties: Individuals who don't get health insurance