Question: The March 31 deadline for enrolling in a health insurance plan via the Hawai’i Health Connector is fast approaching. If I don’t have health insurance by March 31, will I have to pay a tax penalty? I have heard the tax penalty is $95 this year for one person. That doesn’t sound like too much. Is that the most I can be charged for not having health insurance?

Answer: The penalty can be substantially higher than $95. There is a penalty for each person who does not have the required coverage, with the amount determined by a formula. Basically, for 2014, it’s the greater of $95 or 1 percent of your modified adjusted gross income above the filing threshold for your filing status.

For example, if your filing status is single, you are required to file a federal income tax return if you have $10,150 or more of income. That means the penalty amount would be the greater of $95 or 1 percent of your income above the first $10,150.

Regardless of your income, the penalty cannot exceed a maximum amount equal to the national average premium for a bronze level plan purchased through an exchange — a number the IRS will eventually tell us, but it will certainly be a lot more than $95.

Q: When would I have to pay the penalty and how do I pay it? Is it added to my federal taxes?

A: Starting with tax year 2014, any penalty due will be computed on your federal income tax return and will be payable along with your federal income tax liability. 

Q: Is the penalty higher for a family?

A: The penalty applies to each person who does not have required coverage. For a child, the parent or parents claiming the child as a dependent become responsible for the penalty. In computing the penalty amount, the applicable filing status (for example, married filing jointly) will be used. The fixed-dollar amount (the $95 in 2014) is cut in half for a child, and the family total cannot be more than three times the base amount for that year. That means the fixed amount for 2014 cannot be more than $285 (three times $95) regardless of how many children are in the family. Of course, the actual penalty can be much higher, because it’s the greater of the fixed amount or a percentage of income.

Q: Is the penalty higher if my income is above a certain level? How high can it go?

A: Yes, up to a certain limit, the penalty will increase as your modified adjusted gross income increases. We don’t know the exact limit because it depends on the national average premium for a bronze level plan purchased through an exchange, but it will probably be several thousand dollars per person per year.

Remember, if you pay that penalty, you are not buying health care coverage from the government. It’s just a penalty. You are still uncovered when you need health care.

Q: If my income is small enough, do I get an exemption from the penalty?

A: Yes. If your income is not enough to require you to file a federal income tax return, then you are exempt from the penalty. For example, if your filing status is single, the threshold amount at which you are required to file a return is $10,150 of income. Below that level, you are exempt from the penalty.

Q: Is the penalty going to go up after the first year?

A: After 2014, both the fixed amount (the $95) and the percentage (the 1 percent) will increase. For 2015, the fixed amount will be $325 and the percentage will be 2 percent. For 2016, the numbers jump to $695 and 2.5 percent. After that, an indexing formula will apply.

The big unknown, however, is the national average premium for a bronze level plan purchased through an exchange. That amount, which determines the maximum level of the penalty, could in theory move downward.

Personally, I’m not making any bets on that. Therefore, we don’t really know for sure whether the maximum penalty will go up or down.

Last but not least, there is always the possibility that Congress will make changes to the law. If a lot of people are hit with big penalties, there could be political pressure to grant some form of relief. Whether that will happen, or what it might look like, are questions with no clear answers.

Q: When I file my taxes next year will I have to prove I have health insurance to avoid the penalty? Will I have to send a copy of my health insurance card with my tax forms?

A: According to the IRS, "Information will be made available later about how the income tax return will take account of coverage and exemptions." When forms and instructions for tax year 2014 become available in early 2015, they should tell us the answers to these questions.