The Affordable Care Act (ACA), commonly known as Obamacare, was signed into law in 2010. Since 2014, citizens without qualifying health care coverage (also called minimum essential coverage) must pay a penalty, called the Individual Shared Responsibility Payment, and the cost of this fine has increased each year.
This year's tax penalty for no health insurance could cost you thousands of dollars. Whether you plan to file your taxes yourself using online tax software or hire a professional, here are five things you need to know about the uninsured penalty for the 2016 tax year.
1. How much is the tax penalty for no health insurance? How is it calculated?
The Individual Shared Responsibility Payment can be calculated two ways, as a percentage your income or as flat rate, and you'll be charged the higher amount.
- Percentage of income: 2.5% of your household income, with a maximum fine equivalent to the national average of a bronze-level health plan's yearly premium, which is $2,676 for individuals and $13,380 for a household of five or more.
- Flat rate: $695 per adult and $347.50 per child, with a household maximum of $2,085.
2. If I had health insurance part of the year will I still be fined?
Yes. You'll pay a penalty for each month you went without health insurance in 2016, unless you were uninsured for less than two consecutive months.
3. Are there any exemptions?
Yes, there are five main types of exemptions listed on the IRS's website. Some exemptions require you to submit an application to qualify, others can be claimed on your federal tax return. Possible exemptions include the following:
- Income: If your income is less than $10,350 (individual) or $20,700 (married, filing jointly) you're not required to file a tax return, which grants you an exemption. You may also be exempt if the lowest-priced health care plan you qualify for costs more than 8.13% of your household income.
- Hardship: Certain events and financial situations, such as the death of a family member, bankruptcy, medical expenses and natural disasters, may exempt you from this penalty.
- Health coverage-related: If you were uninsured for less than two consecutive months, you may be exempt. You may also be exempt if your income is below 138% of the federal poverty level ($16,242 for individuals, $21,983 for couples, $33,465 for a family of four) and your state didn't expand Medicaid coverage.
- Group membership: If you belong to a federally recognized tribe or health care-sharing ministry you may be exempt. Members of religious sects that object to insurance based on religious grounds may also receive exemptions.
- Other: If you live abroad or are incarcerated, you may qualify for an exemption.
4. Did President Trump's January 20, 2017, executive order "minimizing the economic burden" of the ACA impact this penalty?
Probably not. The IRS will accept tax returns that fail to disclose whether you had qualifying health care coverage instead of rejecting the return. As a result, most tax software programs still ask you to indicate if you were insured but allow you to file your taxes online without this information.
It's unknown at this time whether the tax penalty for no health insurance will be enforced, or if the executive order's provision giving agencies authority to "… waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose … a cost, fee, tax, penalty, or regulatory burden … " on individuals and families will be exercised.
Industry experts suggest that if you decline to indicate if you had health insurance in 2016, the IRS may follow up with you. And, if you weren't insured, you'll still be expected to pay this fine, since the ACA is federal law, and it would require congressional repeal to eliminate this penalty.
5. What happens if I don't pay this penalty?
If you were uninsured in 2016 and decline to make the Individual Shared Responsibility Payment, the IRS will deduct it from your future tax returns, along with interest.
If you didn't have health care insurance in 2016 for more than two consecutive months, it's likely that you'll owe an expensive penalty, unless you qualify for an exemption. Although President Trump signed an executive order in January 2017 encouraging agencies to waive burdensome penalties, it's currently unclear whether the IRS will waive the ACA's Individual Shared Responsibility Payment. If you decide not to disclose your 2016 insurance coverage and pay this penalty when you file your tax return, the IRS may contact you later and withhold future returns.