For example, an uninsured individual with an annual income of $40,000 would pay 1 percent of the difference between $40,000 and the "filing threshold" ($10,000), leaving a total of $30,000 in taxable income. One percent of $30,000 is $300. Since $300 is greater than $95 (the flat fee for an adult), this person would pay a $300 penalty in 2014.
"The amount of the potential tax penalty can be pretty surprising to people who thought it was going to be $95 and then discover the tax could be $1,200 or more because of their personal circumstances. It can really add up if you have a large family and many dependents," said Sutton of H&R Block, which offers a "tax and health care review" service to help clients determine their potential tax penalty and eligibility for tax credits and subsidies available in the new health insurance marketplaces.
Penalty prorated monthly
You won't need to pay the tax if you were uninsured for less than three months of the year. But after that, the tax applies to each month within a calendar year that you did not have coverage for yourself or a member of your household. Insurers will provide documentation to prove you had insurance.
Smaller tax refunds
The penalty will be assessed when filing your income tax return and deducted from any potential refund. "Any reduction in the refund amount is eye opening because many people plan for that refund every year," said Sutton.
No criminal penalties
At this point, individuals who do not comply with the federal mandate to carry health insurance face no criminal penalties or threat of liens and seizures by the Internal Revenue Services.
Weigh the risks carefully
Choosing to forego health insurance means you're responsible for paying all of your health care costs, from visits to the doctor's office for vaccinations, health screenings and check-ups to ambulance rides and emergency department visits for life-threatening situations. You also won't have any protection against astronomical medical bills – such as a $30,000 bill for a three-day hospital stay – that can sometimes lead to personal bankruptcy.
"A serious illness or sudden accident could lead to financial disaster, no matter what your age," said Niwao.
Read More About Health Insurance:
- The U.S. News & World Report Guide to Buying Health Care
- How U.S. News Rates Health Plans
- Personal 'Obamacare' Accounts Now Available