California health insurance - Comparing Covered Ca Plans - 2016 Health Insurance Tax Penalty
Going
without health insurance is getting pricey!
It's about to jump 25%
Many people call us to walk through the options available to them through Covered Ca.
More than a few come to this calculation:
Great question and we need to look at both sides of that question.
First, let's look at the basic information on the tax penalty and where it's going for 2016
The ACA law created two incentives for people to enroll in health insurance. One carrot and one stick.
You can guess which one the penalty is.
The tax credit based on income is the carrot. If you're eligible, it can pay a lot of your monthly premium.
The penalty is the other side.
Both are designed to offset a key component of the law.
Guaranteed Issue
It's an insurance word which means this...
All good news but how do you keep people from enrolling when they get sick or hurt?
If you don't, the rates go through the roof!
Carrot and Stick!
The penalty is 2% of income or $325/uninsured adult; which ever is higher.
It's half the adult rate for children.
The 2% usually wins there. Especially in California.
Quick example.
The more you make, the bigger the penalty.
We'll get into the fine print (how, when, etc) of the penalty but first, let's look at 2016 changes to the penalty.
Almost 3%
That's a lot of money.
If you make the same $50K above, now you're looking at $1250 in April.
That's a big hit.
The penalty for children is 1/2 the adult amount below the percentage threshold.
Lots of questions!
How is the Tax Penalty Applied?
The penalty will be applied at tax time the following year. It will process through your tax filing.
For example, in April 2016, people can expect to pay a penalty of 2% for not having health insurance during 2015.
The 2.50% penalty for 2016 will show up April 2017.
Many people have already seen their IRS refunds/payments affected in 2015 for 2014 penalty.
That was only 1%. We're almost triple that for 2016.
What about partial year insurance?
Let's say you are covered on an employer sponsored plan from Jan 2016 through July 2016 and then go without coverage for the rest of the year.
This
means they look at your coverage per month, over 12 months.
In the case above, you would pay 1/2 of the total penalty in the situation above.
One more wrinkle.
You're allowed up to a 2 month gap in coverage per year. Only one of these gaps is allowed.
In the case above, the penalty would actually be 4 months (12 total months minus 6 months of employer coverage minus 2 month gap allowance
If a total year penalty comes out to $1200 (about $48K income), each month is worth $100 in penalty.
Deduct $200 (2 month gap) from this amount.
In order to avoid the penalty, you must have an ACA compliant health plan.
Only certain plans meet the requirements which generally provide the 10 Essential Health Benefits.
All the Covered California plans and those mirror plans off-Exchange meet these requirements.
There can be short term plans and other plans that do not protect you from the penalty.
Be careful of anyone pushing low priced plans that do not meet the requirements.
Ask them,
"Is this plan ACA compliant and does it cover the 10 Essential Health Benefits"
Watch how fast they change the subject. Paying for a sub-standard plan and a penalty is insult to injury.
Yes but be conservative on this. Don't assume the IRS is going to be flexible.
Or do so at your own peril!
These are the common exemptions:
You can find more detail on these hardship exemptions here.
Again, be conservative on the exemption front. Do not assume it will be easy!
We can quickly help you compare the cost of health insurance against a 206 tax penalty.
Definitely make sure you're not missing out on a tax credit.
Many people have incorrect figures and are not getting the full tax credit due to them.
The tax credit calculation is not easy.
It's impossible to compare the 2016 tax penalty until we really know how much coverage will cost.
Related Pages: 10 Invaluable Tips to Successfully Comparing Covered Ca Plans