No Health Insurance? How to Avoid Obamacare Penalty Fees

The Affordable Care Act has helped millions of people sign up for health insurance, but it also penalizes anyone who opts out of coverage. If you failed to sign up for health insurance by the cutoff date of Feb. 15, 2015, you will likely face a penalty. Individuals must pay the IRS based on the number of months they lacked coverage during the year. However, there are ways to avoid paying the fees.

How Much Is the Penalty?


For the 2015 tax year, the Obamacare penalty, also known as the individual shared responsibility payment or individual mandate, is the greater of 2 percent of household income above the tax-filling threshold -- double the rate for 2014 -- or a flat fee of $325 for each adult without coverage and $162.50 for each child. There is a cap, based on the average cost of a bronze insurance plan, of $2,570 per person.

If you have to pay the fee for 2015, it will come out of your tax refund; if you're not getting a refund, you'll need to pay the fee when you file. Keep in mind that, if you're going without coverage in 2015, the penalty won't be assessed until you file your taxes in 2016.

You May Not Have to Pay If ...


There are ways to avoid the penalty even if you don't have insurance from the government's health insurance marketplace, an employer, a private exchange, or through a program such as Medicare or the Veterans Health Administration. Individuals are allowed to have a gap of up to three months at a time without insurance and not be penalized. Additionally, people can apply for an exemption if they object to insurance on religious grounds, the cost of insurance is more than 8 percent of their household income, they are members of a Native American tribes, or they qualify based on other circumstances outlined on Healthcare.gov.

There are also hardship exemptions, which may last up to a full year but more typically apply to the months immediately before, during, and after a hardship event. Michael Mahoney, senior vice president of consumer marketing at GoHealth.com, notes that the exemptions are very specific and few in number. Qualifying circumstances include the cancellation of an individual plan for someone unable to afford a replacement, receiving a shut-off notice from a utility company, facing eviction or foreclosure, substantial damage to property, and the extra expense of caring for an ill, disabled, or elderly family member. A full list of hardship exemptions is available on Healthcare.gov.

There are 14 hardship exemptions and 11 more general exemptions, and most require an application form available on Healthcare.gov. The amount of documentation needed to qualify for an exemption is not yet clearly defined, Mahoney says, and cases are reviewed individually. If you are considering requesting an exemption, keep as many records on file as possible and apply early, as the review process can take several weeks and you'll need to obtain a certificate number for your 2015 tax return. If your circumstances don't warrant an exemption, you can calculate your likely penalty using the Tax Policy Center's calculator. You'll still have to pay, but at least you'll know how much to budget and won't be caught off guard next year at tax time.