Tax Day Health Insurance Fines

Several million people face tax day health insurance fines. But what exactly is the fine for failing to obtain health insurance?

Despite extensive debate, Congress has yet to act on legislation to repeal portions of the Affordable Care Act. That means the law and almost all of its regulations are still in effect for the time being.

[callout title=”Tax Day and Health Insurance”]For the majority of tax filers, who had insurance through an employer or government program for 2016, all they have to do is check the box on Form 1040 that says they were covered for a full year. That’s it.

Under a decision by the Trump administration, however, leaving that box blank will not get your tax return kicked back to you. The IRS under President Barack Obama also did not reject returns with the box left blank last year or the year before, but it had announced it would step up enforcement of what’s known as the “individual mandate” for the tax year 2016. That plan was canceled under Trump’s executive order calling on federal agencies to “minimize the burden” of the health law.[/callout]

Those who have been without insurance for more than three months, or who purchased individual insurance and received federal assistance in paying the premiums, must do a little more work.

Those who do not have insurance or have a long gap may be required to pay what the federal government refers to as a “shared responsibility payment.” It’s a penalty for not having coverage, with the idea that even those who don’t have insurance will eventually use the health-care system at a cost they can’t afford, and someone else will have to foot the bill.

Many uninsured people, however, qualify for one of several dozen “exemptions” from the fine. According to the IRS, nearly 13 million tax filers claimed an exemption for 2015. The most common were for people whose income was so low (less than $10,350 for an individual) that they were not required to file a tax return, Americans who spent most of the year abroad, and people who could not afford the cheapest available insurance (costing more than 8 percent of their household income).

For 2016, the penalty is the greater of $695 per adult or 2.5 percent of household income. The fine for unclothed children is half that of adults. The fine is prorated based on the number of months you or a family member were uninsured.

The maximum penalty is $2,676, which is the national average cost of a “bronze” level insurance plan available through the health exchanges. However, the majority of people do not pay anywhere near that much. According to the IRS, an estimated 6.5 million tax filers paid a $470 fine last year.

If you purchased your own insurance through the federal or state health insurance exchanges and received a federal tax credit to help pay for it, you must also complete a step before filing your taxes.

People who received those tax credits are required to complete a form that “reconciles” the amount of subsidies they received based on their income estimates with the amount they were entitled to based on their actual income reported to the IRS.

In 2016, 5.3 million taxpayers had to pay the government because they received too many tax credits, compared to 2.4 million who received additional funds. However, even among those who understated their income and had to repay some of their tax credits, 62 percent received a net tax refund.

Kaiser Health News (KHN) is a national news service covering health policy. It is a program of the Henry J. Kaiser Family Foundation that is editorially independent.

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