The Affordable Care Act, or ACA, requires that most Americans buy health insurance — but not everyone signed up, and not everyone who did sign up kept their coverage. Millions could owe a tax penalty for not having health insurance, a fee that’s sometimes called the Obamacare penalty.
Who pays a penalty for no health insurance
If you go more than three full, consecutive months without health insurance, you might have to pay a tax penalty for that year. If you have health insurance for only one day of a month, it counts as a month with health insurance.
Here’s an example: Say you go without health insurance for all of January and February. Then you buy health insurance and it goes into effect on the last day of March. You would not be subject to a tax penalty for no health insurance because you didn’t go without a health plan for three full, consecutive months.
Cost of health insurance penalty
The penalty is calculated in one of two ways: either as a percentage of your total household adjusted gross income or a flat rate, whichever is greater.
- For tax year 2017, the penalty is 2.5% of your total household adjusted gross income, or $695 per adult and $347.50 per child, up to a maximum of $2,085.
- For tax year 2018 and beyond, the penalty amounts have not been announced, but are expected to increase.
A tax preparer, if you have one, or tax software can calculate any penalty for not having health insurance. Note that for the 2017 tax year, the IRS won’t automatically reject tax returns that don’t disclose whether you have health insurance. But taxpayers who don’t answer the health insurance question may be contacted for follow-up, according to the IRS.
Exemptions from health insurance penalty
If you qualify for an exemption under the ACA, you won’t be charged a penalty for not having health insurance. You won’t have to pay a fee if:
- The most affordable coverage costs more than 8.13% of your household income
- You were uninsured for less than three consecutive months of the year
- You are exempt from filing a tax return because your income is too low
- You are Native American or eligible for health services through an Indian Health Services provider
- Your religion objects to the use of insurance
- You’re in prison
- You belong to a health care sharing ministry
- You have been abroad for more than one year
- You qualify for a hardship exemption due to an issue such as homelessness, bankruptcy, eviction or similarly trying circumstances, listed here.
If you believe you qualify for an exemption, you can claim it when you file your tax return, or apply for an exemption on the Healthcare.gov website.
Buying health insurance and avoiding a penalty
If you can’t get health insurance through a workplace, the health insurance marketplace at Healthcare.gov is a good place to start. You can search for plans and prices there, or be directed to your state’s marketplace.
Open enrollment for ACA health plans — during which you can sign up for coverage for the next year — only lasts for 45 days: Nov. 1 to Dec. 15, 2017. Outside of open enrollment, you may be able to sign up if you have a qualifying life event, such as a recent marriage, divorce or birth.