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Monday, February 9, 2015

7 Million Americans Will Pay a Tax Penalty For Not Purchasing Health Insurance This Year -- Are You One of Them?

7 Million Americans Will Pay a Tax Penalty For Not Purchasing Health Insurance This Year -- Are You One of Them?

According to the Affordable Care Act, Americans are required to purchase health care insurance or pay a penalty. The estimate is that about 7 million will actually have to pay the penalty. This may seem like a big number, but it boils down to just 1.4 percent of all Americans.

Who will have to pay?

About 94 percent of the population has health insurance. Among the remaining 6 percent, or about 18 million, includes 11 million people who are low-income or middle-income Americans who are eligible for subsidies through the government that help cover the cost of their health insurance premiums through the state health insurance exchanges. The remaining 7 million are those who don't qualify for subsidies and who will be penalized for not having insurance, unless there are valid, extenuating circumstances such as a hardship exemption.

How much is the penalty?

Since this is the first tax year involving penalties for not having health insurance, the penalty is 1 percent of annual income, or $95, whichever is higher. As an example, a family who brings home $50,000 would be hit with a $500 penalty. But, the penalties will go up in the next tax year. In 2015, the penalty will increase to $325 per person, $975 per family or 2 percent of household income, whichever is greater. In 2016, it will almost double.

For some, at least for tax year 2014, it might be cheaper for them to pay the penalty rather than the cost of insurance. But as the penalties increase in each tax year, even this group will most likely reconsider the consequences and find it a better option to purchase insurance.

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