Obamacare's Individual Mandate Excise Tax and Employer Mandate Tax

In June 2012, the U.S. Supreme Court upheld the constitutionality of Obamacare's individual mandate by concluding that imposing a penalty for not purchasing health insurance is a valid exercise of Congress' power to tax. (Really?) Beginning January 1, 2014, all Americans will be required to purchase either a private health plan or health insurance through a state exchange if they are not otherwise exempt or covered by their employer. The requirement does not apply to Americans age 65 and older who are covered by Medicare.

Certain individuals will be exempt from the insurance requirement. These include undocumented immigrants, individuals who are incarcerated, members of Indian tribes, people who are between jobs and without insurance for up to three months, and people with certain religious objections. Individuals and families whose income is below the threshold required to file a tax return (currently $9,500 for an individual and $19,000 for a family) will not have to pay the penalties if they cannot prove they hold insurance.

Individual Mandate Excise Tax

When Obamacare starts in 2014, any individual who does not purchase qualifying health insurance must pay an Obamacare individual mandate non-compliance tax.

Americans liable for the surtax will pay according to the following schedule, in each case the tax penalty is the greater of the specified percentage of adjusted gross income (AGI) or the dollar amount per year.

1 Adult2 Adults3+ Adults

However, as household income increases, eventually the percentage tax will rise to equal the cost of the national average premium for a "bronze-level health plan," where it is capped. (The bronze plan is expected to be the least expensive plan in the line-up of policies that will be offered through the Obamacare health insurance exchanges.) The Congressional Budget Office estimates that in 2016 the cost of a bronze-level plan for a family would be between $12,000 and $12,500 a year.

As Grace-Marie Turner, writing for Forbes explains: "A family earning $120,000 in 2016 will face a tax of $3,000 a year if they don't buy health insurance with the government's stamp of approval. For some, it will make sense to pay the tax and take their chances since health insurance companies will be forced to sell them a policy when they need it at the same price as if they had been paying premiums all along. That will, of course, send the cost of health insurance soaring. Higher-income individuals face a much larger tax because, for them, the amount of the tax is determined by the cost of a government-approved bronze health plan. A family earning $500,000 a year pays 2.5% of its income in the tax and hits the cap at $12,500. The tax could be higher, of course, if the cost of this government-approved policy escalates."

Since the mandated insurance exchanges which are supposed to be in place and open by October 1, 2013 do not yet exist, and pricing is not available for any available plans, it is impossible to come up with actual numbers of what the penalties will be at this time.

Employer Mandate Tax

For employers with more than 50 full-time employees, if the employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2,000 per full-time employee.

If any employee actually receives coverage through an exchange, the penalty on the employer for that employee rises to $3,000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer).

The first 30 workers are not counted in calculating either of the above penalties. Independent contractors are not counted among employees. There is a calculus for the full time employee equivalent of a group of part-time employees.