How To Avoid The Tax Penalty For An Insurance Gap
Gaps in your insurance coverage could prove costly for you. If you are without insurance more than three consecutive months during the year, you could face tax penalties. In 2016, the penalty was $695 per uninsured adult in your household. If you are facing a coverage gap, here is what you need to know.
How Can You Fill the Gap?
Your options for filling the insurance coverage gap vary. The circumstances that led to your gap sometimes have a bearing on which options are available to you.
For instance, if you have changed jobs and are ineligible for health care for the first 90 days, you could possibly rely on the coverage from your previous employer. After leaving your previous employer, you should have received notice about the Consolidated Omnibus Budget Reconciliation Act, or COBRA.
COBRA allows you to continue your coverage provided through your previous employer. The catch is that you are responsible for paying your entire premium. The cost could be far more expensive than you can reasonably afford.
Regardless of the reason, if your gap is slated to only last a few months, you could purchase a short-term health insurance plan. You do not have to wait for open enrollment to enroll in a plan. It is important to note that you are subject to meeting certain requirements by the insurance company. As a result, you could face rejection if you do not.
You can also shop in the government-run Health Insurance Marketplace. You can receive subsidies to pay towards the insurance premium. Unlike short-term plans, you cannot be denied coverage.
What If You Cannot Fill the Gap?
If you cannot afford a short-term policy or COBRA, you could possibly qualify for an exemption that would help you avoid the tax penalty for not having coverage. One possible way of avoiding it is to claim financial hardship. You have to prove to the Internal Revenue Service, or IRS, that you were financially unable to pay the coverage.
Even if you were offered a subsidy through the Marketplace, you can still argue that you were unable to afford it. The IRS looks at your total yearly income and household size to determine if you still qualify for a financial hardship exemption.
The best time to explore your options for handling a coverage gap is before it actually occurs. Consult with an experienced insurance agent to determine your best course of action to avoid tax penalties. Companies like Red Oak Insurance Agency may be able to help meet your needs in this area.
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