As we understand the rules, payment for penalties must be included with applicable individuals’ federal income tax returns for the taxable years during which penalties apply. Applicable individuals are responsible for penalty payments owed by their dependents too (I.R.C. § 5000A(b)).

Annual penalties for applicable individuals and their dependents over age 18 equal the lesser of:

  • an amount equal to the national average premium payment for the applicable tax year for bronze level qualified health plan coverage; or
  • a percentage of individuals’ income or the annual flat penalty amount, whichever is greater (I.R.C. § 5000A(c)).

For purposes of applicable individuals’ penalties, percentage of income equals:

  • 1 percent in 2014,
  • 2 percent in 2015, and
  • 2.5 percent in 2016 and subsequent years (I.R.C. § 5000A(c)(2)).

The annual flat penalty amount is:

  • $95 in 2014,
  • $325 in 2015, and
  • $695 in 2016 (I.R.C. § 5000A(c)).

For calendar years beginning after 2016, the annual flat penalty amount is $695 multiplied by the federal cost of living adjustment rounded to the next lowest multiple of $50 (I.R.C. § 5000A(c)(3)). The penalty for each month in a year during which applicable individuals do not have or maintain minimum essential health care coverage is one-twelfth of the annual penalty. Annual penalties for persons under age 18 equal one-half of applicable individuals’ penalties (I.R.C. § 5000A(c)(3)).

Applicable individuals are not required to pay penalties if:

  • their annual required health care coverage contributions, such as premiums, exceed 8 percent of such individuals’ household income for the taxable year;
  • their income for the taxable year is below the filing threshold for the individuals’ family size;
  • they are unable to obtain qualified health plan coverage due to a hardship as determined by the federal Secretary of Health and Human Services; or
  • they are members of certain Indian tribes (I.R.C. § 5000A(e)).

If applicable individuals do not pay penalties, they are not subject to criminal prosecution (I.R.C. § 5000A(g)).