I am in NYC. I received an advertising mail from Healthfirst. On its envelope, it says:
Urgent: Get health insurance for 2017 now to avoid a tax penalty.
What does it mean, and why?
In 2016, I didn't have health insurance, and my income was around $15k, which might be too low to be taxable, although I haven't checked it yet. Will I receive a tax penalty for not having health insurance in 2016?
Thanks.
This is part of the Affordable Care Act. Because of the ACA, everyone must have insurance, either through their employer or purchased through one of the marketplaces (i.e. personally purchased).
Here is the blurb about fees for not being covered: https://www.healthcare.gov/fees/fee-for-not-being-covered/
If you can afford health insurance but choose not to buy it, you must pay a fee called the individual shared responsibility payment. (The fee is sometimes called the "penalty," "fine," or "individual mandate.")
You owe the fee for any month you, your spouse, or your tax dependents don’t have qualifying health coverage (sometimes called "minimum essential coverage"). See all insurance types that qualify.
You pay the fee when you file your federal tax return for the year you don’t have coverage.
In some cases, you may qualify for a health coverage exemption from the requirement to have insurance. If you qualify, you won’t have to pay the fee. Learn about health coverage exemptions.
Learn more about the individual shared responsibility payment from the Internal Revenue Service.
The fee for not having health insurance in 2016 & 2017
The fee is calculated 2 different ways – as a percentage of your household income, and per person. You’ll pay whichever is higher.
Percentage of income
2.5% of household income Maximum: Total yearly premium for the national average price of a Bronze plan sold through the Marketplace Per person
$695 per adult $347.50 per child under 18 Maximum: $2,085 Paying the fee
Using the percentage method, only the part of your household income that’s above the yearly tax filing threshold ($10,300 for individuals, $20,600 for couples filing jointly in 2015, the most recent year available) is counted.
Using the per-person method, you pay only for people in your household who don’t have insurance coverage.
If you have coverage for part of the year, the fee is 1/12 of the annual amount for each month you (or your tax dependents) don’t have coverage. If you’re uncovered only 1 or 2 months, you don’t have to pay the fee at all. Learn about the “short gap” exemption.
You pay the fee when you file your federal tax return for the year you don’t have coverage.
You can use their tool to determine if you are exempt from coverage: https://www.healthcare.gov/exemptions-tool/#/
Also, your $15K income is taxable, FYI. You'll be in a low tax bracket, but you will still be paying taxes.
Update based on additional information provided in the comments:
1. Does the tax penalty due to having no health insurance apply to a resident alien defined for tax purpose?
Yes. This applies to resident aliens.
- Are all individuals living in the United States subject to the individual shared responsibility provision?
All U.S. citizens living in the United States are subject to the individual shared responsibility provision as are all permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes. This category includes nonresident aliens who meet certain presence requirements and elect to be treated as resident aliens. For more information see Pub. 519.
2. Does the tax penalty due to having no health insurance apply to 2016?
Yes. When you file your 2016 taxes (which are due by mid-April 2017), you will need to prove you either had insurance or were exempt from needing insurance in 2016.
3. I might start to work from mid Jan this year, which should provide health insurance. Will I receive tax penalty for not having health insurance during the first half of Jan in 2017?
Yes. You have a 3 month grace period for not having insurance. In order to avoid the penalty, you will need to have insurance coverage until your company's insurance kicks in. You should read this to get more info about the grace period, as you might not need to pay for more than a month or 2 to get into the grace period.
Best I can tell, if you live in NY, are single, and make less than $16,395 per year you are eligible for Medicaid. If you apply and are approved the tax penalty should no longer apply to you.
Update: Since you are on an F1 Visa, you are not eligible for Medicaid, but you also aren't subject to the tax penalty for not having health insurance unless you have resided in the US for more than 5 years. If you are interested in obtaining health insurance, your best place to start is to talk to your school. Typically they have subsidized rates which are much better than what you'll find on the open exchange.
Update 2: Since you now file taxes as a resident, you are subject for the tax penalty unless you made less than $10,350 in 2016. For example, if you made $15,000, your penalty would be:
(15000-10350) * 2.5% = $116.25
However, filing your taxes as a resident may now make you eligible for Medicaid. I would recommend contacting the NY Medicaid helpline to obtain more information, or your school.
