By Rick Dickson
The 2016 health care penalty, which is payable with the 2016 return filed in 2017, will rise again for the upcoming filing season. For the 2016 tax year the penalty is a minimum of $695 per adult and $347.50 per child with a household maximum of $2,085. This penalty amount will be adjusted upwards for inflation in future years. There are numerous exceptions to paying this penalty, the most obvious one being to simply obtain health coverage. Firstly, you can be exempted from the penalty if health coverage is simply unaffordable, meaning that the premiums are in excess of 8.05% of your household income. Next, you are exempt from the penalty if you experienced a short coverage gap, defined as a gap in coverage of less than three months, which is typically experienced when changing jobs. Lastly, if your income is below the filing threshold the penalty does not apply. This is the case whether or not you file a return, as there are reasons to file even if you are not required to.
The filing thresholds in 2015 were $10,300 for single individuals, $13,250 for head of household, and $20,600 for married filing jointly. Keep in mind that these thresholds are adjusted upwards every year for inflation and the 2016 thresholds were not yet released at the time of this publication.
All of the above exceptions are simply calculated when you prepare your tax return. There are other exceptions referred to as “hardships.” These hardship exceptions are not blanket exceptions of the penalty like the ones listed above. The IRS will ask for documentation to substantiate your hardship and, if approved, will only waive the penalty for the portion of the year that the hardship existed.
Hardships include, but are not necessarily limited to, being homeless, being evicted within the last six months, receiving a shut off notice from a utility company, experiencing the death of a family member, or filing for bankruptcy. The submission of a hardship application takes time to process. However, taxpayers are allowed to submit the hardship application and file their return assuming the hardship is granted by entering, “pending” on the Form 8965 which is used to claim the health coverage exemptions and get you out of paying the penalty. This will likely prolong the processing time of the return but can potentially save you around $2,000.
If you have questions regarding the health care penalty or need assistance obtaining health coverage please contact us. Our in-house insurance expert, Richard Dickson, can help you sign up for coverage.