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11 Reasons You Won’t Have to Pay a Health Insurance Tax Penalty

11 Reasons You Won’t Have to Pay a Health Insurance Tax Penalty - TaxACT Blog

It’s just about Super Bowl time, and the Oscars aren’t far behind, so maybe you’re making some bets in the office pool. (Of course we would never endorse illegal gambling!)

You know, getting some skin in the game for a few bucks.

While winning a fistful of cash would be nice, hopefully you won’t mind losing a little – it’s all in good fun, right?

When you start filling out your tax return instead of football squares, you might find you have a bit more to lose. (Specifically, starting on line 61 of your Form 1040.)

One of the least understood aspects of the Affordable Care Act (ACA) is that if you can afford health insurance and you choose not to buy it, you’ll be subject to a penalty.

The ACA calls it the individual responsibility requirement; the IRS refers to it as the individual shared responsibility payment or provision.

No matter what you call it, you’ll have to deal with it when you file your 2014 taxes.

“Many of the estimated 13% of Americans who were uninsured for a significant time in 2014 are in that boat,” says Ivan Williams, senior policy analyst at GetInsured. “And since this is the first time in history that you’ll have to state whether or not you have health insurance when filing your taxes, many people may be caught unaware.”

There is some good news, though.

First off, the penalties in this inaugural year of the law are relatively modest: You’ll have to pay whichever is higher, either $95 per uninsured person ($47.50 for children under 18), or 1% of your income above the income tax filing threshold: $10,150 for an individual, $20,300 for a married couple filing jointly.

Keep in mind, though, that the penalty will increase each year, doubling to 2% for 2015.

They are certain circumstances that will exempt you from paying the penalty.

See if any of these 11 describe you. “If not,” says Williams, “expect to pay the piper.”

You’re adequately insured.

If you had insurance throughout 2014 that is considered minimum essential coverage – through your own or your spouse’s employer, or through a marketplace plan – you’re all set.

You’ll see the appropriate box to check on your tax return. Same goes if you’re enrolled in Medicaid, Medicare, or TriCare.

You were uninsured for less than three months in 2014.

The penalty only kicks in if your uninsured period lasted longer than three months.

For example, you lost employer coverage and then got a new job in which coverage didn’t start right away.

You had coverage in place by May 1st, 2014.

You were late to the game but managed to get coverage that started on or before May 1st, 2014?

The good news is you can claim an exemption for the months you were uninsured before May. But don’t count on this exemption again next year.

You didn’t qualify for Medicaid solely because your state didn’t expand eligibility for Medicaid under the Affordable Care Act.

You’re exempt from filing taxes…

If your income is low enough that you don’t have to file a federal tax return, the penalty doesn’t apply to you.

You couldn’t afford insurance.

If the lowest-priced insurance coverage available in your area would cost more than 8% of your income, you won’t pay a penalty if you don’t buy it.

You had a hardship.

If you experienced a significant disruptive life issue—such as domestic violence, being evicted from your residence, a fire or flood, or a death in your family— you may be exempt from the penalty.

You were out of the country for most the year.

If you weren’t physically present in the U.S. for at least 330 days in a 12-month period, you’re not subject to the penalty. Here’s more info from the IRS.

You are a member of a federally recognized tribe.

Or, if you are eligible for services through an Indian Health Services provider, or you’re part of a recognized religious sect that has a faith-based objection to insurance, social security, and Medicare.

You were in prison.

Oh, we know you’re a decent and law-abiding citizen—but just in case you had a lapse in judgment that put you behind bars in 2014, you’re free, at least, from paying a penalty.

You’re a resident of the United States Territories.

By law, you’re considered as already having minimal essential coverage.

For most of these exemptions, you’ll need to complete IRS Form 8965, Health Coverage Exemptions, when you file your federal income taxes.

Keep in mind that the taxes you’re filing are for 2014, so even if you purchase a health plan between now and the last day of open enrollment (February 15), it won’t save you from the penalty for not having coverage last year.

But since the price for not having health insurance is only going up, maybe you’ll be less willing to forfeit the money – or to gamble on your healthcare next year.

You have just about a month left to enroll. Our bet? That you’ll see the win-win of signing up now and not losing out later.

Ivan Williams’ Monthly Tip: For those of you who were covered for part of the year and don’t qualify for any exemptions, your penalty will be prorated based on the number of months you were uninsured. As we say here at GetInsured, An ounce of health insurance today can save you a pound of taxes tomorrow.  Be penny-wise and not pound-foolish!
TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.


  1. Billy Rubin says:

    12. Unlike other taxes and penalties, the ability of the IRS to enforce and collect the mandate tax is constrained. Under § 1501(g)(2) of the ACA, the agency is precluded from using its traditional means of collecting fines and back-taxes. The law provides that those facing the penalty “shall not be subject to any criminal prosecution or penalty” for nonpayment. Moreover, liens and levies cannot be placed on the property of the uninsured. Therefore, the only means of collection at the IRS’s disposal is the garnishment of the uninsured person’s income tax refund. This narrow window affords intuitive would-be tax-avoiders the opportunity to flout the system.

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