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Tax Implications of the Affordable Care Act - Quicken Loans Zing BlogThe Affordable Care Act is a law that, among other things, mandates minimum requirements for health insurance coverage. If you applied for and received a subsidy to pay for coverage, your taxes may be affected. There’s also the reality that not everyone wants health insurance or has a plan that meets the standards.

The tax implications of this may be confusing, but we’re here to walk you through it. Take a deep breath and let’s get started.


When you applied for coverage through the federal health insurance marketplace, you may have qualified for a subsidy in the form of a tax credit based on your income and the number of people in your family.

If your income or family size changed over the course of the year, the subsidy you’re eligible for may have changed. You can choose to have the difference applied to your premium balance or your tax return. You will either get money back or end up paying a bigger fee.

If You Don’t Have Coverage

Not everyone wants to pay for health insurance coverage. If you don’t, that’s fine. However, you may end up paying a penalty on your taxes if you don’t qualify for an exemption.


Even if you didn’t have qualifying minimum coverage at some point during 2014, there are still situations where you may not be subject to a fee. You may be exempt from paying the fee if one of these applies to you:

  • The period for which you didn’t have insurance was less than three months of the tax year
  • The lowest possible price for a coverage plan would be more than 8% of your family’s total income
  • You fall below the threshold to file a tax return
  • You’re a member of a Native American tribe recognized by the federal government or otherwise eligible for services provided through Indian Health Services
  • You belong to a recognized health care-sharing ministry
  • You belong to a recognized religion that has objections to insurance coverage
  • You’re in jail or don’t qualify based on the legality of your immigration status
  • You suffered a legal hardship

If any of these scenarios match your situation, you can apply for an exemption.

Fee Structure

If you don’t qualify for an exemption, you’ll be required to include the penalty fee with your tax return as either a flat dollar amount or a percentage of your household income, whichever is higher.

It’s important to note that whatever fee you pay cannot exceed the national average of what it would cost you to pay for a bronze plan through the health insurance marketplace. The average the IRS will use for 2014 tax returns is $2,448 per person or an absolute maximum fee of $12,240 for a family of five or more.

You only have to pay the fee for the months in which you were uninsured. For example, if you were uninsured four months, you only pay a third of the annual fee.

There are explanations of how both fees are determined below.

Flat Fee

If you have a low income level, you’ll pay a flat fee of $95 per adult and $47.50 for each of your dependent children who didn’t have qualifying health coverage in 2014. (If the child turned 18 the previous year, you pay the child rate for every month up to that point.) If you pay this fee, it’s capped at $285.

For your 2015 tax return, the fee is $325 per adult ($162.50 per child), capped at $975. In 2016, the fee is $695 per adult ($347.50 per child) with a maximum family fee of $1,875. After that, it’s adjusted for inflation.

Income Percentage

If you’re above the threshold to pay the flat fee, your penalty is a percentage of your household income.

For your 2014 tax return, this percentage is 1.0%. The portion of the income taxed will increase to 2.0% and 2.5% in 2015 and 2016, respectively.

Calculating the Penalty

We’ve thrown a lot of information at you so far, but how do you actually calculate what you’re supposed to pay?

The number depends on the amount of taxable income of all members of your household, your return threshold, and the number of months uninsured. If you end up paying the flat fee, it’s also affected by the number of members in your family.

The calculation, (income – threshold amount) × .01, will give you your penalty based on income percentage for 2014. If the flat fee is higher, that’s what you pay. Otherwise, pay based on income.

I hated story problems in math class as much as anyone else. In this case though, it might give you a better handle on things to see the formula in action.

Example 1

Kim is a 23-year-old single parent of a 4-year-old. She makes $18,000 a year. Neither she nor her child had health benefits in 2014.

Because of Kim’s age and marital status, and because she would file as a head of household, her filing threshold is $13,050. Therefore, to calculate her penalty based on income percentage, it’s $18,000 – $13,050. The remaining $4,950 is then multiplied by .01, giving you $49.50.

Kim’s flat rate calculation is $95 for her and $47.50 for her child, coming to a $142.50 penalty.

Because the flat rate penalty is higher, she pays $142.50.

Example 2

Doug and Tonya file taxes jointly as a married couple in their mid-40s. Doug is a carpenter, so they’ve always used Tonya’s insurance. Their insurance lapsed last year when Tonya was laid off for four months. During this time, they had no other insurance. They made a combined income of $60,000 in 2014.

Based on their age and marital status, the filing threshold for Doug and Tonya is $20,300. To calculate their income percentage tax penalty, subtract the threshold ($60,000 – $20,300 = $39,700) and multiply by .01, which gives you $397. Since the couple was only uninsured for four months, divide this rate by 12 to get $33.08. Then multiply by four ($132.32).

The flat rate for two adults is $190 ($95 x 2). Because the penalty is only four months, we divide by 12 and multiply by four ($63.32).

Because the percentage penalty is higher, they pay the percentage penalty of $132.32.

Example 3

Jim is a single, 66-year-old accountant making $110,000.

Given Jim’s age and marital status, his tax threshold is $11,700. To get his income percentage penalty, subtract $11,700 from $110,000 and multiply by .01. You get $983. Because this is higher than the $95 he would pay under a flat fee, he pays the income percentage fee.

Hopefully this has helped clarify things when it comes to the Affordable Care Act and your taxes.

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