I can’t enroll in my employer-sponsored plan until July. Do I have to pay a penalty for the first half of the year?

Q. I’ve been uninsured for the last few years. My company offers health insurance, but I didn’t enroll during the open enrollment period last July. I don’t qualify for subsidies in the exchange because I have an option for employer-sponsored coverage, but I can’t enroll in that plan until next year’s open enrollment in July. Do I have to pay a penalty for being uninsured for the first half of the year, even if I enroll in my employer’s plan next summer?

A: Yes, although it will be prorated based on the number of months you’re uninsured (and here’s how the IRS handles a gap in coverage that spans two calendar years).

In 2013, the IRS granted relief from the penalty in situations like this, but only for 2014. Their logic was that without the penalty relief, people in this situation would essentially be penalized for not enrolling in coverage in 2013 if they had a plan with mid-year open enrollment, despite the fact that the individual mandate (requirement to maintain health insurance) didn’t go into effect until 2014. To address this problem, the IRS allowed people in this situation to avoid the penalty for 2014, as long as they enrolled during their open enrollment period in 2014.

But now that the individual mandate has been in place since 2014, there’s no longer an exemption for situations like this. Once your open enrollment period for your employer’s plan passes, you’ll only have an opportunity to sign up if you experience a qualifying event (qualifying events for employer-sponsored insurance are similar to those in the individual market, but not identical). And if you go without health insurance for more than a two-month stretch during the year and are not eligible for an exemption, you’ll be subject to the penalty.

The penalty is prorated based on how many months you’re uninsured (you can use this calculator to determine how much it will be). Depending on when you realize that you’ve missed your employer’s open enrollment, you may have the option to enroll in an individual market plan — on or off-exchange — during the individual market open enrollment period (this is an annual window, from November 1 – December 15, and it differs from open enrollment periods for employer-sponsored plans, with vary from one employer to another), and keep that coverage until your job-sponsored plan becomes effective. You won’t qualify for a subsidy due to the availability of coverage from your employer, but paying full-price for an individual plan might be a better use of your funds than paying the penalty when you file your tax return.

The individual mandate penalty will no longer apply after 2018, as the GOP tax bill (H.R.1) that was enacted in late 2017 repeals the mandate penalty as of 2019. People who are uninsured in 2018 will face a penalty unless they qualify for an exemption (the penalty will be assessed on their 2018 tax returns, filed in early 2019). But people who are uninsured in 2019 will not face a penalty.

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