Health care coverage gaps happen. Whether because of job loss or an extended sabbatical between gigs, you may find yourself without health care for a period of time. Here are some tax consequences you should know about, as well as tips to fix a coverage gap.
Coverage Gap Tax Issues
You will have to pay a penalty in 2018 if you don't have health care coverage for three consecutive months or more. Last year the penalty for a full uncovered year was equal to 2.5 percent of your household income or $695 per adult (and $347.50 per child), whichever is higher. The 2018 amounts will be slightly higher to adjust for inflation.
Susan lost her job-based health insurance on Dec. 31, 2016, and applied for a plan through her state's insurance marketplace program that went into effect on April 1. Because she was without coverage for three months, she'll owe a fourth of the penalty on her 2017 tax return (three of 12 months uncovered, or 1/4th of the year).
Three Ways to Handle a Gap
There are three main ways to handle a gap in health care coverage:
- COBRA. If you're in a coverage gap because you've left a job, you may be able to keep your previous employer's health care coverage for up to 18 months through the federal COBRA program. One downside to this is that you'll have to pay the full premium yourself.
- Marketplace. You can buy an insurance marketplace health care plan through Healthcare.gov or your state's online portal. Typically, you can only sign up for or change a Marketplace plan once a year. But you can qualify for a 60-day special enrollment period after a major life event, such as losing a job, moving to a new home or getting married.
- Applying for an exemption. If you are without health care coverage for an extended period, you may still avoid the penalty by qualifying for an exemption. Valid exemptions include unaffordability (you must prove the cheapest health insurance plan costs more than 8.16 percent of your household income), income below the tax filing threshold (which was $10,400 for a single filer below age 65 for 2017), ability to demonstrate certain financial hardships, or membership in certain tribal groups or religious associations.