To not be subject to the tax penalty, a person needs to first have a qualified health plan. Simply put, a qualified health plan is a part of the Affordable Care Act. Group health insurance through your employer is also considered a qualified health plan. You also have Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP). Also, there are pseudo-insurance programs that aren’t technically insurance, such as Medi-share programs, which are essentially Christian co-op organizations that will pay together. Lastly, the V.A. for veterans. Tri-care programs are qualified exemptions. Bottom line: any of the aforementioned programs qualify and will exempt you from the penalty.
Types of Exemptions
So, if you don’t have a qualified health plan and you go the whole year without having qualified coverage, you would be subject to receiving the penalty. However, that doesn’t mean you will necessarily pay a penalty, but you’d be subject to the penalty. You wouldn’t know until after you file your taxes. Healthcare.gov has a list of exemptions. If any of the listed exemptions apply to you, then you are exempt from the penalty. For instance, losing an immediate family member or being a domestic violence victim are qualified exemptions. The list is extensive, so you should go to healthcare.gov to learn more. You can submit paperwork for your exemption on the same site.
How Much Is the Penalty?
If you know that you have no exemption or you don’t have a qualified health plan, then you are subject to the penalty. Now, the penalty is based on your household income, which is determined by your tax returns and adjusted gross income. This year and next year the penalty is 2.5 percent of your adjusted gross income. In some cases, it’s a flat rate of $695 per adult and half of that for children. If the percentage is greater than the flat rate, then that is the one that will be applied.
The penalty is also based on your income versus what the lowest cost bronze plan is. If the lowest cost bronze plan is over 8.5 percent of your income, then you would not have to pay the penalty. Again, you would be subject to the penalty, but you would not be responsible for the payment.
You typically won’t know how much the penalty is until the end of the year when you file your taxes. At that time, you’ll know whether or not you have to pay the penalty, and if so, how much you have to pay.
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