Understanding ACA Tax Penalties: What You Need to Know

The Affordable Care Act (ACA) has been a topic of much debate since its inception. One aspect of the ACA that has raised concerns is the tax penalty for not having health insurance.

What is the ACA Tax Penalty?

The ACA tax penalty is a fee that you may have to pay if you do not have health insurance for a full year. The penalty is calculated as a percentage of your household income, and it can be significant.

How the Penalty is Calculated

The penalty for not having health insurance is based on your annual income. The penalty is calculated as a percentage of your income above the filing threshold. The filing threshold is the income level at which you are required to file a tax return.

For 2024, the filing thresholds are:

$12,950 for single filers
$25,900 for married couples filing jointly

If your income is above the filing threshold, the penalty for not having health insurance is:

1% of your household income in 2024
2% of your household income in 2025 and beyond

Exceptions to the Penalty

There are some exceptions to the ACA tax penalty. You may not have to pay the penalty if you:

Are uninsured for less than 3 months of the year
Qualify for a hardship exemption
Are a member of a religious sect that opposes health insurance
Are incarcerated
Are not a U.S. citizen or legal resident

Consequences of Not Paying the Penalty

If you do not pay the ACA tax penalty, the IRS may:

Deduct the penalty from your tax refund
Garnish your wages
Seize your assets

How to Avoid the Penalty

The best way to avoid the ACA tax penalty is to have health insurance. You can get health insurance through your employer, the Health Insurance Marketplace, or a private insurance company.

If you cannot afford health insurance, you may qualify for a hardship exemption. To qualify for a hardship exemption, you must meet certain criteria, such as having a low income or being unable to find affordable health insurance.

Conclusion

The ACA tax penalty is a fee that you may have to pay if you do not have health insurance for a full year. The penalty is calculated as a percentage of your household income, and it can be significant. If you cannot afford health insurance, you may qualify for a hardship exemption. The best way to avoid the penalty is to have health insurance. Call our licensed agent for an instant consultation.