How the uninsured can avoid paying a tax penalty

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KANSAS CITY, Mo. --- For months, the Obama administration has warned Americans: Sign up for health insurance or risk paying a tax penalty. Monday is the final day for sign-ups and those who decide to remain uninsured could end up owing the Internal Revenue Service hundreds, if not thousands of dollars. But there is a way to avoid this penalty.

Some may simply choose not to pay it and hope the current rules are maintained, which prevent the IRS for further penalizing you for not paying the penalty.

According the Affordable Care Act, the IRS cannot force you to pay the penalty. The IRS cannot garnish your wages or put a lien on your home if you don’t pay up. The only way the government can get its money is to take it from your tax refund. Unless you change your withholding from your W-2, you can expect a much lower tax refund beginning in 2015 if you choose not to buy health coverage.

“People do not like paying tax penalties or any form of taxes so perhaps it just is an incentive to get people to sign up for health care,” said Lynn Ebel, a tax attorney for H&R Block.

She warned that the tax penalties will rise drastically over the next three years.

Here’s the formula: The fine is $95/person with a maximum of a $285 fine per family or 1% of household income minus the income threshold of $10,150 for a single person or $20,300 for a family. The income threshold is what a you can make before paying taxes.

So if a family of four without health insurance brings in $70,000 in 2014, it would be $70,000 minus $$20,300 multiplied by 1%. That would equal a tax penalty of $497.

Next year it will jump to 2% of a family’s income, so the fine would equal $994.

In 2016, the federal tax penalty is 2.5% of household income or $695/person, so the fine for that family of four would jump to $2085.

“Changes in your life, you know, like divorce, a baby or changes in income like retiring, getting a new job or winning the lottery - this could all change the penalty,” Ebel said. “So it’ll fluctuate from year to year.”

There are several ways a person or family could be exempt from paying the fine.

Members of Indian tribes, the homeless, those who live out of the country, and those who are uninsured for less than three months of the year are just a few of the groups who will not face a tax penalty. All the details of this new health insurance law leave many struggling to understand it all.

“The affordable care act is the largest change to the tax code in over 20 years,” Ebel said, “so it’s normal to understand that people are going to be very confused about all of the details that surround it.”

Ebel added that many people who qualify for federal subsidies to lower their health insurance premiums could pay less for health insurance than they would paying the tax penalty for not having health insurance. To learn more, go to or H&R Block’s health insurance website,

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  • stacey bengtson

    And so if you have to pay “a fine” you could say it’s more like a “contribution” since you get nothing for it and it is going towards this catastrophe? Heck I’m going to argue for a write off.

  • David Larson

    I have a friend who just got heath insurance for herself and she is healthy 22 year old woman and she rarely goes to the hospital. She pays 208 monthly for her insurance she also don’t qualify for government help with insurance so she wanted to know whether its worth it to just pay the tax penalty and be uninsured or keep her insurance that she may never use and pay 208 monthly. Any Advice/Guidance Would be helpfull

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