Do I still owe a penalty if I choose to go without health insurance?

Do I still owe a penalty if I choose to go without health insurance?
Eileen St. Pierre, The Everyday Financial Planner

Thinking man picThe failure of the House of Representatives to pass the initial Affordable Care Act (ACA) or Obamacare “repeal and replace” bill has left more questions than answers. As it stands now, the ACA is still in force. This means the individual mandate that requires all Americans to have health insurance still stands, unless you qualify for an exemption. However, an executive order signed on January 20 to reduce the burden of the ACA has made things a lot murkier.

You are now allowed to file a “silent” 2016 federal income tax return.

Before this executive order, the IRS was automatically rejecting 2016 returns where the taxpayer failed to indicate health insurance coverage. After the order, the IRS starting accepting “silent” returns where the box essentially goes unchecked. By not indicating whether or not you had mandated health insurance, taxpayers can avoid paying the penalty, also referred to as the shared responsibility payment. If you still plan on using a paid tax preparer to file your 2016 taxes (the deadline is April 18), keep in mind that not all preparers will file a silent return for you.

You are still required to pay the penalty.

Be prepared for the IRS to send you a notice, asking for more information regarding your health insurance coverage. You could also face an increased risk of audit. Depending on how the politics work out later this year, you may still have to pay the penalty. The IRS is not allowed to garnish your wages if you do not pay it, but they can deduct it from future tax refunds.

The penalty for not having coverage in 2016 can be steep.

The penalty is calculated two different ways – per person or as a % of income. You pay the higher amount:

  • $695 per adult + $347.50 per child under age 18, up to a maximum of $2085
  • 2.5% of household income, up to a maximum of the yearly premium for the national average price of a Bronze plan sold through the Marketplace

Expect things to get even more confusing as the open enrollment period for 2018 approaches this fall. I will do my best to keep you up to date.

Visit my Taxes and Health Care Reform pages for more information.