The goal of Obamacare is to ensure that everyone will have access to quality, affordable health insurance. So, if you or your family doesn’t have one, you may be penalized, especially if you can afford to buy a health plan and that you are not exempt for any reason.
What Are Tax Penalties?
These refer to fines that you will have to pay if, during an assessment for individual shared responsibility payment, you are determined to be non-participating. Under the Affordable Care Act (ACA), “participate” means that you must have health insurance, as stipulated by Obamacare, which meet the minimum essential coverage requirement. Each year, you are given a set amount of time to enroll for health insurance, and failure to do so would mean incurring fines. For the year 2016, the sign up period is from Nov. 1, 2015 to Jan. 31, 2016. It doesn’t matter where you enroll, whether it is through your employer, private insurer or state marketplace, as long as you do. Failure to do so would mean paying for tax penalties.
How Much Fine Will You Incur For Not Being Able To “Participate?”
The calculations are based on a percentage of your household income, or on per person or per family basis.
- In the 2014 tax year, the fine was at 1% of your household income, or $95 per adult who is not insured, and half of that amount per uninsured child, whichever is greater. This amounts to a family rate of $285.
- During the 2015 tax period, you will be charged with a fine of 2% of your household income, or $325 per adult who is not insured and $162.50 per child who is not insured.
- During the 2016 tax period, you will be charged with a fine of 2.5% of your household income or $695 per adult who is uninsured, whichever is greater.
Starting from 2016, all fees will increase along with inflation. So, if you want to avoid paying penalties every year, you should buy a health plan. If you get insurance in less than 3 consecutive months of being uninsured, you may be able to spare yourself the hefty fine.
What Is a Short Gap?
Penalties are based on the number of months that you or your dependents did not have insurance. If you and your family was only uninsured for less than 3 consecutive months, you fall under what is called a short gap. For this time period, you will not have to pay penalty.
In the event that you have multiple short gaps, only the first short gap is considered penalty free. This means for every short gap you incur after the first one, you will pay the designated fine. Know though that penalties are treated on per tax year basis, which means you will have another penalty free short gap the next year. You can choose to buy insurance with a coverage of just 9 months. But wouldn’t that be more inconvenient if you have to renew your policy every year?
How Are Tax Penalties Collected?
By law, the IRS are forbidden from using liens or levies to collect tax penalties from the ACA or Obamacare. They can, however, deduct the penalty from your tax refund. So, if you have multiple short gaps, expect your tax refund to get a hit. In some cases, penalties are added to your tax bill, which is probably more painful from a financial standpoint. At least, when it is deducted from your refund, you might not need to shell out money, provided that your tax rebate can cover the fines and maybe leave you with some extras.
Will You Go To Jail If You Don’t Pay Tax Penalties?
No, which is good news. The bad news is your tax refund is likely to be locked up. This is because the IRS can put it on hold, until you pay up. This is especially true if your rebate is not enough to pay in full your tax penalties.
What Is The Process Involved In Filing Taxes For Your Penalties?
Your insurer will send any of the following forms: 1095-A, 1095-B, or 1095-C, which will list down the number of months that you had coverage. So any other months not included on the list would most likely be a short gap. As previously mentioned, if it is not the first, it comes with fines.
What About Special Exemptions?
You are exempted from fines or from the Obamacare requirement if you qualify for special exemptions. In a nutshell, this refers to your inability to buy insurance because of hardships or religious objections.
You will not be charged with non-compliance fee if you don’t get a health plan for any of the following reasons:
- Coverage sponsored by your employer is way too expensive for you.
- You are part of a health care sharing ministry recognized by the state.
- You are a non-legal or incarcerated resident.
- Your income is so low, you don’t need to file taxes.
- You are experiencing hardship which includes, but not limited to bankrupt, being homeless, have a canceled insurance, or experiencing natural disaster.
The list of exemptions vary from one state to another, so it is best to refer to the health marketplace to see if you meet other conditions for exemptions. In the event that you qualify for exemptions, you may be exempt from having health insurance for 3 months or up to one calendar year.
How Do You Qualify For Exemptions?
1. Sign up for a marketplace account at HealthCare.gov. Doing so is the easiest way to determine if you quality for exemptions or for lower cost on coverage.
2. Give yourself ample time to apply, as it will take a while for exemptions to go through
3. You must get an Electronic Confirmation Number (ECN) to certify your exemption. In the event that you still don’t have it yet, but you are eligible for exemption, you can just report PENDING.
4. Find out if you qualify for a catastrophic health plan, which you can get if you are under 30 years old and that you can’t find a plan that costs less than 8% of your income.
5. See if you qualify for special enrollment.