California health insurance  -  Comparing Covered Ca Plans  -  2016 Health Insurance Tax Penalty

Going Up - the 2016 California Health Insurance Tax Penalty

Tax penalty for no insurance


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Covered Ca agentGoing without health insurance is getting pricey!

It's about to jump 25% in 2016

Many people call us to walk through the options available to them through Covered Ca.

More than a few come to this calculation:

How much will I pay in penalty versus health insurance premium?

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

Why a tax penalty? The Stick!

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...

  1. A person CANNOT be declined based on health
  2. There are NO waiting periods for pre-existing conditions
  3. There are NO rate increases based on health

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!

What's the penalty for 2015?

The penalty for 2015 is up to 2% of income

tax penalty for covered ca


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.

If you make $50K, you can expect to pay about $1000 at tax time if you did not have coverage for the full year.

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.

Health insurance penalty for 2016

The penalty for individual families that do not have health insurance will be 2.50% or $695/uninsured adult in 2016

 covered ca penalty example

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.

So what if we have health insurance part of the year? Only for some family members?

Lots of questions!

The Hows and Whens of the Tax Penalty for 2016

How is the Tax Penalty Applied?

The penalty will be applied at tax time the following year. It will process through your tax filing.

  1. If you are due a refund, the penalty will be subtracted.
  2. If you owe money, the penalty will be added to your payment amount.

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.

Unique applications of the 2016 penalty

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.

The health insurance tax penalty is pro-rated.

California health insurance ratesThis 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.

What type of coverage allows you to avoid the 2016 penalty?

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.

All the individual/family plans you quote here are ACA compliant and will protect you from the penalty.

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.

Are there exemptions to help you avoid the 2016 Penalty?

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:

  1. Lowest priced plan in Covered Ca would exceed 8.05% of your income
  2. You make below the threshold required to file tax return
  3. You were uninsured for 2 months or less during calendar year
  4. You are a member of a Federally recognized Indian Tribe
  5. You are incarcerated
  6. You are living abroad or not legally present
  7. You belong to a recognized religious sect that is opposed to health insurance on religious grounds
  8. You experienced a hardship recently (bankruptcy, unemployment, etc)

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.

Just call 800-320-6269. Our services are free to you.

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



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