Millions of Uninsured To Face Tax Penalties Under the ACA

Beginning in 2014, the Affordable Care Act requires most legal residents of the United States to get health insurance or pay a penalty tax. That penalty will be whichever of the following is greater:

1. A flat dollar amount per person. It rises to $695 in 2016 and is indexed by inflation thereafter (The penalty for children will be half that amount and a cap will apply to family payments) or

2. A percentage of the household’s income that rises to 2.5% for 2016 and subsequent years (also subject to a cap).

The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate that about 30 million non-elderly residents will be uninsured in 2016, but the majority will not be subject to the penalty tax. People who are exempt from the mandate include unauthorized immigrants who are prohibited from receiving almost all Medicaid benefits and all subsidies through the insurance exchanges.

Others will be subject to the mandate, but will be exempt from the penalty tax for the following reasons:

1. Their income low enough that they are not required to file an income tax return.

2. They are members of an Indian tribe.

3. The premium they would have to pay would exceed a specified share of their income (initially 8% in 2014 and indexed over time).

In 2016, 18 million to 19 million uninsured people are expected to qualify for one or more of those exemptions. Some of the remaining 11 million to 12 million uninsured will be granted exemptions because of hardship while others will be exempted on the basis of their religious beliefs.

After accounting for those who will not be subject to the penalty tax, CBO and JCT now estimate that about 6 million people will pay a penalty because they are uninsured in 2016 (That includes uninsured dependents who have the penalty paid on their behalf.) CBO and JCT also say that total collections will be about $7 billion in 2016 and will average about $8 billion per year from 2017 to 2022.

In general, lower income households will be subject to the flat dollar penalty (with adjustments to account for the lower penalty for children and a cap on family payments). Higher-income households will owe a percentage of their income. In 2016, households with income that exceeds 400% of the FPL are estimated to constitute about one-third of people paying penalties and account for about two-thirds of the receipts from those penalties. For more information, visit http://www.cbo.gov/publication/43628.

Last Updated 7/11/2017

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