Fees for Not Having Health Insurance

Self Employed Individuals Are Still Require to Have Health Insurance

IRS Forms
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If you are your own boss and earning any sort of an income working from home, online, cleaning houses, or being paid for other services it is important that you understand how the Internal Revenue Service (IRS) defines being "self-employed."  Simply because you earn an income (for example through odd jobs or babysitting money or selling crafts) does not necessarily mean you are self employed and sometimes, even when you work for someone else you may still considered self-employed (i.e., independent contractors.)

The reason it is important to know if you meet the IRS' definition of self-employed because you may have to pay income tax on your profits as well as self-employment Social Security taxes or pay a fee if you do not have health insurance coverage.

Here are a a few examples of how the IRS defines a self-employed person:

  • A sole proprietor that conducts a trade or business;
  • An independent contractor;
  • Member of a partnership; or
  • If you are otherwise in business for yourself.

Even if you have another job where you are employed full- or part-time, if you conduct business that classifies as self-employment income you may still be subject to self-employment taxes. In other words, regardless of other sources of income, if you have income from being self-employed, you generally must pay self-employment taxes.

Fees for Not Having Health Insurance

If you can afford health insurance and do not pay for it, you will likely have to pay a fee for not having your own health insurance.

  "Afford" meaning your income fits into a certain table of data used as income and affordability guidelines for families and individuals -- and not whether you simply think you cannot afford it.

As of fall 2015, fees for not having health insurance are calculated in one of two ways, as a percentage or by individual.

  You do not get to pick which option you want, you need to calculate health insurance fees both ways and pay the higher of the two.

Percentage Based Fees

2.5% of household income will go for the fee; however, there is a maximum you will have to pay. Your health insurance fee cannot exceed to total annual insurance premiums for the national average price of a Bronze plan sold through the Marketplace.

The good news is that the percentage method only considers your household income above a certain level.  In 2015 that meant income above:

  • $10,150 for individuals; and
  • $20,300 for couples (filing jointly)

Fees By Head Count

Fees may also calculated at a rate of $695 per adult; $347.50 per child under 18 years of age, with a maximum a household payment of $2,085.

If someone in the household has insurance, you only need to calculate a fee for those who do not.

  For example, if your children have health insurance through another parent or assistance program, you do not pay a fee even though they are listed on your tax return because they already have health insurance.  But if you (or your spouse or children) do not have health insurance, than you count all those with no coverage and multiply it by the rate used depending upon whether you are calculating for an adult or a child.

If you (or anyone in your family) had health insurance coverage through any part of the year, you get a break for each month you had insurance coverage.  For example, if you had coverage six months out of the year you can deduct half of your fee (because 6 months is half of the 12-month year).  If you had insurance for 4 months out of the year, you can deduct 1/3rd (because 4 months is 1/3rd of the year.)

If you were uninsured for only one or two months you may not have to pay any fee at all under the  "short gap" exemption.

Fees Are on the Rise

In 2014 percentage fees were 1%.  In 2015 they had been increased to 2%, and in 2016 they are increasing again to 2.5%.  Maximum payment thresholds have also risen each year so it is important to really plan ahead if you do not have health insurance as you could end up having to pay a couple thousand dollars to the IRS on top of any income tax you owe.

If you do not pay the fee and the IRS finds out, they will hold future refunds to cover your debt, but there are currently no criminal penalties, liens, or levies if you do not.

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