Understanding the Health Insurance Tax Penalty for 2017 Taxes

Under the Affordable Care Act, individuals are mandated to purchase health insurance. The penalty for not having insurance is part of your tax return. Let’s take a look at the penalty and how it applies to you. 

The government fines you 2.5 percent of your income or $695 per person ($347.50 per child), whichever is greater, on your income tax return for not having health insurance in 2017. It’s estimated that about 6 million people in the U.S. will pay the penalty, so you’re not alone. The maximum penalty is $2,085. ​

You only pay the fee for each month you didn’t have coverage. If you didn’t have insurance from July through November, the fee would be five-twelfths of the annual amount, one-twelfth for each month you don’t have coverage. Although, there is a “short gap exemption” for not having coverage for just one or two months. 

In addition to a penalty on your taxes, you are still responsible for 100 percent of your medical bills if you don’t have health insurance. 

Exemptions for the Penalty

The ACA offers exemptions, which means you won’t pay a fee if:

• You were uninsured for less than three consecutive months in the year.
• You don’t have to file a tax return because your income was too low.
• You are a Native American, eligible for health services through the Indian Health Services providers.
• You have a religious objection to insurance.
• You have been overseas for more than a year. 
• You are incarcerated.
• You have a hardship exemption, for example, homelessness, bankruptcy, a death in the family or are caring for an ill or aging family member.
• You belong to a health care sharing ministry. 
• The most affordable coverage costs more than 8.13 percent of your income. 

Unemployment is not an exemption by itself. However, several exemptions might apply if you have little to no income. You can learn more about exemptions and apply for one at healthcare.gov. 

If you don’t get health insurance through your workplace, open enrollment on the marketplace is at the end of the year, generally from Nov. 1 through Dec. 15. If you have a recent qualifying event, like a divorce or marriage, you may be able to sign up outside of open enrollment. 

The tax penalty amounts for tax year 2018 have not been announced. The federal penalty is eliminated in 2019. However, it is predicted that California will adapt the law and continues the penalties on your stat taxes. Going without health insurance can be financially risky, for more information about health insurance for you, your family or small business, contact Sackett & Associates Insurance Services. We want to help you find the right policy that fits your budget and needs.