December is the midpoint of the 2016 health insurance open enrollment period, which began November 1, 2015, and ends January 31, 2016. As you investigate your options on the government Marketplace, here are two ways the decisions you make could impact your 2016 federal income tax return.
- Penalty. If you decide not to purchase a health insurance policy for 2016, you’ll pay a penalty for any month you don’t have coverage and don’t qualify for an exemption. You’ll pay the penalty, also known as the shared responsibility payment, on your 2016 federal income tax return (the one that’s due in April of 2017). The penalty is calculated as a percentage of your income or is based on the number of uninsured people in your household. You’ll calculate both numbers and pay the higher of the two.For 2016, the percentage-of-income penalty is 2.5% of your household income, up to a maximum of the total average annual premium of a Bronze plan. The per-person penalty is $695 per adult ($347.50 per child under 18), up to a maximum of $2,085.
- Premium tax credit. If you purchase a policy on the insurance Marketplace, you may qualify for a federal tax break. The break is in the form of a credit, which reduces your federal income tax dollar for dollar. You can choose to receive the credit monthly in the form of lower premiums on your policy, or claim it on your 2016 federal income tax return.If you get the credit monthly, be sure to update your information with any changes in your family size or income so you receive the correct amount. Also be aware you’ll need to file a tax return, even if you might not otherwise have to, in order to reconcile the amount of the credit you’ve taken with the amount you are eligible for.
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