Penalties for Failing to Have Qualifying Healthcare
In order for a taxpayer to avoid a penalty on their tax return they must maintain a "qualified healthcare plan" (as defined by the Affordable Care Act or ACA) for the the entire calendar year. All plans purchased in the Marketplace are considered qualifying plans, and most plans offered by employers are considered qualifying plans. Short-term plans or temporary plans do not qualify, and these plans will not help you avoid the federal tax penalty. Before you purchase healthcare coverage, you should make sure that the plan you select is sufficient for your needs and will allow you to avoid this penalty.
Insurance providers send statements to the policy holder following the end of the calendar year which indicate the months which they were covered. Any taxpayers that did not carry coverage all 12 months may incur a penalty on their tax return for the months in which they did not have insurance.
The penalties for not having health insurance are either 2.5% of your household income or $695 per adult (you will pay whichever penalty amount is higher, either by percentage or per person.) Children under 18 may also be subject to the penalty, but their per person rate is lower: $347.50. The maximum penalty assessed is based on the national average price of a Bronze plan sold through the Marketplace.
Exemptions From the Health Insurance Requirements
Some individuals do not have to purchase health insurance because they qualify for an exemption. Most of the exemptions are based on income, but you may also qualify for an exemption based on certain life events or other hardships.
You may qualify for an income-based exemption if purchasing a Marketplace plan would cost more than 8.13% of your household income. You may also qualify for an exemption if you are not required to file a tax return because your income is below the level required to file.
Some members of federally recognized Native American tribes are exempt. Those with religious objections or who are part of a healthcare sharing ministry may also be exempt. These taxpayers must file a form 8965 with their IRS tax return in order to claim one of these exemptions.
If you are granted a coverage exemption from the Marketplace, you will be sent a notice with your unique Exemption Certificate Number (ECN). Keep this notice allong an other tax related doccuments. If your exemption request has not been processed prior to filing your tax return, you will need to complete Part I of Form 8965.