Hello, my question is about the tax penalty if you can afford to pay for health insurance but you choose not to, you have to pay a penalty that is taken out of your taxes every year. I want to know what happens with that money (the penalty you pay on your taxes), where does it go, what is it used for? Nowhere does this website give information like this.
When you pay the tax penalty it goes toward healthcare spending on ACA subsidies, Medicare, Medicaid, and other federal and state healthcare programs.
Or at least that is the easiest connection to make.
The reality of our economic system is that it is way more complex than that.
In reality, borrowing, spending, revenue, and paying back the debt have a complex indirect relationship that spans across the entire economy and many different public and private entities from Congress, to the Fed, to investment banks, to lenders, to borrowers (like you).
Speaking loosely, and putting aside the different places money goes in between, all taxes paid to the IRS (a Treasury Agency) go into a single fund which gets used to pay back debt (we borrow to spend and then pay back debt with tax dollars).
Considering the three biggest expenditures are Social Security, Military, and HealthCare, saying the money goes back into healthcare is a fairly simple and accurate answer (even though it is an answer that excludes the exact mechanics of how everything works; see the link below for the heady stuff).
Healthcare is super expensive, so when someone goes without insurance they pay a penalty as part of their shared responsibility of providing health care to over 320 million Americans.
It may seem unfair on the surface, especially since one doesn't get anything except a fee if they "opt-out" by not getting coverage, but the cost represents the idea that everyone uses the health care system eventually (among other things).
About 88% of uninsured Americans don't pay their hospital bills. In 2011 there was nearly $50 billion in unpaid hospital bills. Hospitals can write these off, but that is money taken out of the pockets of state taxpayers (a write off = less money paid in taxes).
This conversation could go on, but that is the gist.
So in summary, the exact mechanics of how spending and revenue work are very complex, but generally tax dollars go to pay down the debt (much of which was created by healthcare spending), so congress can create more debt, so they can spend more money on healthcare... and then we all pay into that system to make it work.
Learn more about ObamaCare and cost.