The penalty for not getting health insurance might be more than you think

Individual mandate penalty.png

Correction appended.

Under

, beginning in 2014, if you lack

(such as an employer plan) and you don't fall under one of

, you need to get health insurance. Otherwise, you face an annual penalty - one the U.S. Supreme Court deemed a tax.

Just how high of a tax? That's the source of a lot of confusion, partly because the formula for calculating it is complicated.

The feds call the tax a

payment. For ease of use, many of us in the media and readers have seized upon the penalty for singles - $95 for all of 2014 - as reason to forgo coverage that will cost more than $95 a month.

But it's not that simple, as

last week, for a number of reasons.

Your penalty will likely be more than $95. In fact, if you're single and make more than $19,650 next year, you'll owe more. And in future years, you'll owe considerably more, depending on your income.

The Congressional Budget Office has estimated that the penalties would generate $7 billion in revenues by 2017 and $9 billion by 2021.

Before we get into the why, here's a chart to help you figure out what you might owe:

Now, here's the why. The Affordable Care Act says those who refuse coverage must pay either a flat fee per uncovered family member or a percentage of excess income,

. That's the key - whichever amount is greater rules the fee you pay.

The flat fees are deceivingly low. For 2014, it will be $95 per adult dependent 18 or older. It will be half that amount for each child under age 18. Regardless of household size, the

can't be more than $285 per household next year.

"Except it can," Williams writes.

That's right. The flat-fee cap means nothing if you've got what the government calls "excess income."

Excess income is the amount of your household's modified adjusted gross income (MAGI) that exceeds the amount at which you're required to file a tax return.

In 2013, a single taxpayer is required to file a tax return if their income is $10,000. For a married couple, the filing threshold is $20,000. (For tax geeks, the filing threshold is the standard deduction plus the personal exemption).

Now, what's your MAGI,

? It's basically your

(the last figure at the bottom of the front page of

or Line 4 on

) plus any tax-exempt interest, foreign income and all the MAGI of dependents you claim.

If you don't have any tax-exempt muni bonds (Line 8b,

), untaxed Social Security income (Line 20a minus 20b on Form 1040) or foreign earnings (Form 2555), you can safely assume your MAGI is your AGI.

Repeat after me: Your Maggie is usually your Aggie, unless you have muni bond income or earnings from abroad. Though there are

.

Pause a moment to breathe. Observe the rain outside your window. Try to like it.

Once you've figured your excess income amount, you multiply it by an income percentage set by the law. In 2014, it's 1 percent of the amount of your income.

So if you do the math, any single person making more than $19,650 in 2014 will likely owe more than $95. And any couple making more than $48,800 next year will likely owe more than $285.

How much more? Here's an example. A single person with MAGI of $35,000 next year will owe a penalty of about $250, not $95.

Fees go up substantially over the next two years. In 2015 that flat fee schedule goes to $325 per adult dependent and $162.50 per child, but no more than $975.

In 2016, the flat fee hits $695 per adult dependent, $347.50 per child. But no more than $2,085 per household. After that, the Internal Revenue Service will adjust the flat penalties each year for increases in cost of living.

The excess income penalty also increases. In 2015, it goes up to 2 percent of income, and in 2016 it'll be 2.5 percent.

So, in 2015, the person earning $35,000 will owe about $500, not the flat fee of $325. In 2016, that person will pay a flat fee of $625, because at that point the flat fee will be higher than 2.5 percent of income.

A couple making $120,000 in 2014 will likely pay a penalty of $1,000 in 2014, $2,000 in 2015 and $2,500 in 2016.

So, if you think the penalty for not getting insurance is only going to be $95, check your Maggie and the table above. It's likely more. And it'll certainly be more by 2016.

Of course, the trouble is, the IRS can only do so much to collect the penalty. As Williams writes:

It can tack on interest until the penalty is paid, however.

"If the penalty remains unpaid, the interest can accrue," said

, a partner at Jones Day in Washington, D.C. and the IRS health care counsel from 2010 until earlier this year. Also, Congress last year explored the pros and cons of reporting all delinquent taxes to credit bureaus.

Finally, there is a cap on the excess income penalty. It can't be more than the average annual premium for a national bronze level insurance plan. And it has to correspond to the family members who aren't exempt and who don't lack coverage, Livingston said. But we don't know that national average premium yet, she noted.

And most of you won't have to worry -- 2.5 percent of your income does not come anywhere close to $10,000 or more a year.

The best thing to do is not make this decision purely an economic one. You can likely save money by paying the penalty instead of getting insurance. Just make sure you know where you're going to get the money for that unexpected medical bill, however much it might be.

Correction added Nov. 20:

An earlier version of this post incorrectly reported that the MAGI used to determine the penalty included untaxed Social Security income. In fact, according to the U.S. tax code, MAGI used to determine eligibility for health premium tax credits includes untaxed Social Security income. But MAGI used to determine the penalty for not paying insurance does not include untaxed Social Security income.