What Happens If You Can’t Pay the ACA Penalty

What Happens If You Can’t Pay the ACA Penalty

Carrying minimum essential health insurance coverage has a requirement that came with an increasing penalty each year. This started since the ACA was implemented in 2014.

As an additional tax on your return, the IRS collects the ACA penalty. Collecting unpaid taxes is usually under the IRS broad powers but this has been limited by the provisions of the Affordable Care Act (ACA). The IRS can no longer:

  • File criminal charges or seek a criminal penalty
  • File a notice of lien on your property
  • Levy your property

The IRs can collect the penalty later if you don’t pay the Obamacare penalty from your 2018 taxes but only if, on your tax return in the future, you will be receiving refunds or credits soon. If the IRS plans to do this, they will need to notify you. Just like it would for an underpayment of tax, the unpaid amount will result in growing interest. Since the tax law went through some changes, failure to have insurance for 2019 will no longer result in an additional penalty for 2019. However, you still have to deal with any unpaid penalties from previous years.

ACA Penalty Payment Options

You can choose among the following options to make your ACA shared responsibility tax payment:

  • Pay in Full - Paying the penalty in full is the simplest option available for you when you file your tax return. Payment can be made either by using a check or credit card.

You may find a no-interest credit affordable to use if you don’t have the cash on hand as you can always pay the balance down before the interest rate kicks in rather than using the IRS’s monthly installment plan.

  • IRS Monthly Installment Plan - You or your tax preparer also have an option to complete the Form 9465 and request a payment plan if you can’t pay the penalty in full.

You do have to remember that these installment plans aren’t cheap. They can be anywhere from $31 up to $225 to set up the plan. They also come with interest fees and late payment penalties. Form 9465 will provide you all the information you need with regards to this.

Your credit should remain unaffected if you make payments on a regular basis.

  • Get a 6-Month Extension - You can request an extension on the payment due date using Form 4868 once you filed your return. Don’t forget to return this form along with the rest of your tax return by the filing date.
  • IRS Withholding - As you already know by now, if you don’t voluntarily pay the penalty, you’re putting your future refunds at risk. Your penalty balances from the current year tax refund and any future tax refunds you may be owed will be withheld by the IRS.

Can you avoid fines for not having health insurance?

Why worry about paying penalty if you can always choose not to have health insurance? This, however, isn’t easy because you can still be fined for not having health insurance. The good news is there are plenty of ways for you to avoid those fines and recently, the federal government added four more “hardship exemptions”. It gives people assurance that they are safe if ever they can’t find a marketplace plan that meets the coverage they need or reflect their view if they are against abortion.

People can apply for a hardship exemption that excuses them from having to have health insurance under the new rules but only if they:

  • The area they live in has no marketplace plans.
  • The area they live in only has one insurer selling marketplace plans.
  • They couldn’t find a marketplace plan that is affordable and doesn’t cover abortion.
  • The person is experiencing “personal circumstances” which made it difficult to buy a marketplace plan they need. For instance, not being able to find a plan that offers them access to their much-needed specialty care.

There have been hundreds of changes to the tax laws because of the Tax Cuts and Jobs Act and that includes changes to the ACA penalty. If you want to learn how these changes can affect you or need help in filing your tax return overall, it’s recommended that you seek personal assistance from a tax professional.

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