[Updated] What If I Don’t Have Health Insurance?

November 01, 2016 : Lindsey Buchholz

Editor’s Note: You may wonder “what if I don’t have health insurance?” This post was updated from a popular post from last year with up-to-date info! Read on…

By now, you probably know you need health insurance (or a qualifying exemption) or you’ll have to pay a penalty with your income tax… That’s one of the main requirements of the Affordable Care Act (ACA).

The good news is that it’s fairly easy to obtain health insurance coverage. We’ve broken down the different plans to help you understand what’s covered under each plan, having the bare minimum is enough to avoid paying a tax penalty. You also don’t have to buy a plan through the Marketplace to avoid paying the fee; any coverage that qualifies as “minimum essential coverage” is enough.

“Why does the law include a penalty if I don’t have health insurance?”

The penalty is one way of making sure enough consumers are obtaining the required coverage.. As of 2014, the number of uninsured Americans had dropped to a seven-year low of about 10%. More than 16 million people who were uninsured have now gained coverage, but that still leaves millions who may have to pay the penalty.

“How much is the penalty?”

If you did not have coverage in 2016, and didn’t qualify for an exemption, you’ll pay the greater of these two amounts:

  • 2.5% of your yearly household income. Only the amount of income above the tax filing threshold – about $10,300 for the individual – is used to calculate the penalty.
  • $695 per adult for the year and $347.50 if you are under 18. The maximum penalty per family using this method is $2,085.

Overall, the annual penalty is limited to the national average premium for a Bronze plan. For 2016, that is $2,676 for an individual and $13,380 per year for a family with five or more members.

The amount of the penalty goes up in 2017, so make sure you’ve purchased health care by then or obtained a qualifying exemption.

The open enrollment period for 2017 is November 1, and coverage can begin as soon as January 1 if you enroll by December 15.

(Pro tip: If you’re enrolling in Medicaid or CHIP, you can sign up any time.)

“What if I only had health insurance for part of 2016?”

If you spent less than three consecutive months uninsured in 2016, you still can avoid the penalty. It’s important to note that the exemption for short gaps in coverage will look back to the end of 2015 to determine if this exemption will apply if there’s a gap in coverage at the beginning of 2016. Any more than that, and you may have to pay unless you qualify for another type of exemption. The penalty is then calculated as 1/12 of the annual penalty for each month you spent uninsured.

“What are other exemptions?”

If you qualify for an exemption, you can avoid a penalty. There are a variety of exemptions, many of which can be claimed on your federal tax return. Some common exemptions from the penalty include having too little income, religious objections, incarceration or being out of the country. There are also “hardship” exemptions, which can be claimed if tough life situations prevented you from getting health insurance.

“If I have a penalty, how do I pay it?”

If you owe a penalty, use the worksheets located in the instructions to Form 8965, Health Coverage Exemptions, to calculate the amount you owe.

(You can also estimate the amount you might owe, using this calculator from the IRS.)

Still have questions about penalties, or how the ACA affects your taxes? Make an appointment with a tax preparer at H&R Block.

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Lindsey Buchholz

Lindsey Buchholz

The Tax Institute, H&R Block

Lindsey Buchholz, JD, LLM, MBA, is a program manager at The Tax Institute. Lindsey leads research teams and regulatory implementation of the Patient Protection and Affordable Care Act across H&R Block.