01/31/2014 11:07 am ET Updated Apr 02, 2014

Why the Obamacare Penalty Is Not What You Think

Obamacare's individual mandate is kicking in this year, and uninsured Americans will soon face a penalty. However, that penalty remains a confusing and widely misunderstood aspect of the new health care law.

First, you still have time to get insurance without facing a penalty -- the three-month grace period ends on March 31. You can avoid the penalty by purchasing health insurance sometime between now and then.

Critics argue that the penalty hits the middle class hard at a time when the economy is fragile. However, 55 percent of penalty payments will be made by individuals with an income at least 500 percent greater than the federal poverty level, according to the Congressional Budget Office. In 2013, the federal poverty level for a family of three was $19,530, meaning that many of the families paying the penalty will make $100,000 or more per year. Moreover, just 5.9 million Americans are expected to end up paying the penalty at all, which represents less than 2 percent of the entire US population.

People with very low incomes may be eligible for waivers. Those with Medicare, Medicaid, TRICARE, a veterans health care program or a Peace Corps volunteer plan are already considered covered and will not have to pay a penalty.

There are a number of other exemptions from the penalty, including:

• If the lowest-priced coverage available would cost you more than 8 percent of your household income
• If you don't have to file a tax return because your income is too low
• If you were homeless or recently evicted
• If you recently experienced domestic violence
• If you filed for bankruptcy in the last six months

The part that gets somewhat confusing is how much the Obamacare penalty will cost if you are not exempt. Families will pay $95 per adult for the year and $47.50 per child -- or 1 percent of taxable income, whichever is higher -- at a maximum of $285 per family. If you're single with no dependents and make less than $19,500, the fee is $95. However, if you make more than $19,500, you'll pay 1 percent of your taxable income.

Determining your "taxable income" makes it even trickier. You'll have to calculate how much your income (that's your adjusted gross income plus any tax-exempt interest and any excluded income earned abroad) exceeds the sum of personal exemptions and standard deductions, which was $10,000 for singles and $20,000 for married couples in 2013. So, if you are single with no dependents and make $40,000 in 2014, you'll be taxed 1 percent on $30,000, or $300 total. Likewise, a married couple that makes $80,000 will be taxed 1 percent on $60,000, or $600.

The bottom line? If you can afford coverage, it may be better to avoid the headache and the fee and just enroll in a plan before the Obamacare deadline of March 31. If you think you might qualify for an exemption from the fee, apply for one online.