Learn about the tax penalty for no health insurance: What you need to know
If you’re still uninsured, you might be subject to a tax penalty. The penalty was established by the Affordable Care Act to encourage people to get health insurance. However, the rules surrounding the penalty can be confusing. Here’s what you need to know.
How much is the penalty?
For 2020, the tax penalty for not having health insurance is $695 or 2.5% of your yearly income, whichever is higher. However, the penalty will not apply in 2019.
Who is subject to the penalty?
Most people are required to have health insurance or pay a penalty. However, you may be exempt from the penalty if:
– You are uninsured for less than three months of the year
– You cannot afford coverage (meaning your premiums would have cost more than 8% of your household income)
– You qualify for a hardship exemption (such as bankruptcy, eviction, or the death of a family member)
How is the penalty enforced?
The penalty is collected by the Internal Revenue Service (IRS). If you don’t have insurance and don’t qualify for an exemption, the IRS will assess the penalty when you file your tax return. The penalty will be deducted from any refund you are owed, or added to any taxes you owe.
What if you didn’t know about the penalty?
If you were uninsured in 2020 and didn’t know about the penalty, you may still be able to avoid it. You can file for a special enrollment period (SEP) with HealthCare.gov if you meet certain criteria. For example, you may qualify for an SEP if you were unaware of the penalty and didn’t have an opportunity to enroll in coverage during open enrollment.
Conclusion
While the tax penalty for not having health insurance can be burdensome, there are ways to avoid it. Make sure you understand the rules and exemptions, and consider enrolling in coverage if you’re uninsured. In the long run, having health insurance can protect you against costly medical bills and provide peace of mind.
