Who Gets the Tax Penalty for Health Insurance?
Tax penalties for health insurance are not common in most states but one state that assesses such a penalty is Massachusetts. This is because Massachusetts requires health insurance to be purchased by all state residents. Individuals who fail to purchase a health insurance policy will be assessed a financial penalty. The financial penalty can vary from year to year but is assessed to state residents when their income tax is filed each year.
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Requirements
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Individuals who live in the state of Massachusetts are required to purchase heath insurance as a result of a health insurance law that was passed in 2006. The law requires that individuals who are at least 18 years of age to purchase a health insurance policy. A health policy must include a minimum amount of coverage to meet the requirements of the state. Individuals that do not purchase or have a health insurance policy will be assessed a penalty.
Available Penalties
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When the health insurance law was signed in 2006 the penalty for individuals who had no health insurance in 2007 was the loss of the personal tax exemption, which was $219. Penalties for 2008 and beyond were based on one-half of the lowest cost option that was available for health insurance coverage. The penalty in 2008 for individuals without health insurance coverage was $672 for individuals under the age of 26 and $912 if above age 27.
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Avoiding a Penalty
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State residents can avoid paying a tax penalty for health insurance by filing a Schedule HC or Health Care information form when taxes are due. The form will ask for various information about an individual's health insurance coverage. This information is provided by an insurer on a 1099-HC form for individuals who have a health insurance policy. Individuals can also use the Schedule HC form to ask for an affordability exception or a hardship waiver.
Penalty Calculation
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Tax penalties for not having health insurance are based on an individuals age and income levels. The formula used for the calculation of penalties is determined by the revenue department and is based on percentages of the federal poverty level. Penalties can range from $17 to $53 a month for individuals between 150 percent and 300 percent of the federal poverty level. Individuals who are above 300 percent of the federal poverty level and are over the age of 27 or between the ages of 18 and 26 will have a penalty of $52 and $89 a month.
Income Categories
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Income levels and household size for state residents are also used in the calculation of the penalty that is assessed when an individual does not have health insurance. The income levels for a family based on household size corresponds to a particular percentage of the federal poverty level. An affordability tool is available on the state's Health Connector website that can be used to estimate the size of the tax penalty that will be assessed.
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