The future of the Affordable Care Act, former President Barack Obama’s signature healthcare law, is uncertain. But, despite the debate and controversy surrounding this issue, as taxpayers begin to prepare their federal returns for the 2016 tax year, they must keep in mind that the penalties imposed by the ACA to those who did not have health insurance during some or all of 2016 will still be enforced – and those penalties have increased sharply over previous years.
According to healthcare.org, the average penalty for the 2016 tax year will be up to $1,000. For the 2014 tax year, the average uninsured penalty was $210.
There are a few important things to remember about the penalty provisions.
First, the penalty applies if a taxpayer who hasn’t been granted an exemption did not have insurance at any time during the 2016 tax year. That is, taxpayers who had insurance 11 out of 12 months or zero out of 12 months of the year will still be required to pay a penalty, which will be pro rates for the number of months the taxpayer was not covered.
This provision can prove especially tricky, and perhaps confusing, for those who do not obtain insurance directly through an employer. Those who must, for whatever reason, buy their insurance directly through either the healthcare.gov marketplace or purchase an individual policy straight from the insurance company both have a limited enrollment window.
Although the open enrollment period for obtaining coverage for the year extends beyond Dec. 31 of the previous year, that does not mean any policy purchased by the end of the open period will cover the taxpayer for the entire year. Any policy not purchased by Dec. 15 of the prior year will not begin until at least Feb. 1. This means the taxpayer will have to pay an insured penalty for at least one month.
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