Health Reform’s Individual Mandate Upheld as a Tax

Health Care Reform’s Individual Mandate Upheld as a Tax by Supreme Court

Beginning in 2014, U.S. residents who fail to purchase “minimum essential” health insurance coverage will be subject to a tax penalty under the Affordable Care Act (ACA), unless they are exempt or covered by an employer-sponsored health insurance policy or a public program, such as Medicare, Medicaid, or the VA. 

Since the ACA does not outlaw the failure to maintain minimum coverage, but merely imposes a tax on those who do not buy insurance, the U.S. Supreme Court today upheld the individual mandate as within Congress’s power to “lay and collect taxes…The payment is not so high that there is really no choice but to buy health insurance;…and the payment is collected solely by the IRS through the normal means of taxation,” the Court reasoned.

Tax Penalty

The tax penalty for not having minimum essential coverage will be phased in over three years, beginning in 2014.  The penalty will be the greater of a flat dollar amount or a percentage of the individual’s taxable income above the tax threshold amount.  In 2014, an individual would pay $95 or 1% of income, whichever is greater; in 2015, a flat $325 or 2% of income; in 2016, a flat $695 or 2.5% of income.  For example, if an individual's taxable income is $50,000 and the tax threshold amount is $10,000, the penalty in 2014 would be $400.  Generally, the annual penalty is capped at an amount equal to the national average premium for Bronze coverage in qualified health plans.


Those who fail to comply with the ACA will be required to pay a tax penalty to the IRS, unless they are exempt from the mandate.  Individuals with an income below the tax filing threshold or who cannot afford coverage (cost of purchasing insurance exceeds 8% of income) are exempt from the mandate.  Individuals with a coverage gap of less than three months are also exempt.  Others exemptions are available on the basis of hardship or religious objections, and for Native Americans, incarcerated individuals, and undocumented aliens.