Let us begin our wonderful journey of discovery to find out how the PPACA (Patient Protection and Affordable Care act, commonly known as ObamaCare) is going to work out for you and me and people like us.*
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Q: How much are penalties for non-compliance with the ACA's mandate, and how do they work?
A: You pay whichever is less: (1) The national average of the Bronze plan, or (2) a penalty.
For the penalty, you pay whichever is greater: (a) A dollar amount or (b) a percentage of income, pro-rated by the number of months you were not covered. (So, if the dollar amount were $95 -- as it sometimes will be -- and you were not covered for six months, the pro-rated penalty for the non-compliant half-year would be $95 / 2 = $37.50. Details below.)
The dollar amount and the percentage of income are both phased in, starting with the Federal taxes you pay for 2014, in 2015. (The dollar amount, at least next year, is almost certainly less than the Bronze plan, even if we don't have a Bronze plan to look at.) After phase-in, the dollar amount is adjusted for COLA. You pay the penalty at tax time. However, the IRS can't put a lien or levy on you if you don't pay the penalty.
This a little more complicated than the story you read in the press, and may cost you more money than you think. Spoiler alert: You could end up paying more than $95, which is the figure everybody quotes. I'm going to focus mostly on what happens next year, before the complete structure of penalties for non-compliance phases in.
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