Enroll for Health Insurance Now, or Face a Future Tax Penalty

Ed note: The deadline to enroll in a Marketplace health insurance plan is rapidly approaching. Here’s what you need to know, and why you should enroll now. Leer en español.

Everyone is required to have minimum essential health care insurance in 2015. You may be covered under an employer plan or a governmental program, like Medicaid. This previous post has more information on who is already covered versus who is eligible to enroll through a Marketplace.

If you don’t have health insurance coverage and don’t qualify for an exemption, you likely need to enroll in a Marketplace plan. If you don’t enroll before Feb. 15, you could be charged a significant penalty on the 2015 tax return you’ll file in 2016.

What’s the penalty?

For 2015, the penalty is either:

(1) 2% of your yearly household income less your filing threshold

or 

(2) $325 per person without coverage ($162.50 for each child under 18), up to a maximum of $975.

Whichever number is the greater of these two calculation methods will be used.

Here’s an example. A married couple files a joint return. They have one child under 18. No one in the family has health insurance in 2015. The household income is $80,000 and the applicable filing threshold is $20,600.

In this case, the penalty would be $1,188 if the family were without health insurance for all of 2015.

Also, remember that even if you decide to pay the penalty instead of purchasing health insurance, you will have to pay for medical expenses fully out of pocket.

The penalty is figured monthly and there are exemptions for a short gap in coverage. If you’re uninsured for just part of the year, 1/12 of the yearly penalty applies to each month you’re uninsured. However, if you’re uninsured for a continuous period of less than 3 months, you are exempt from the penalty for those months.