Most major legislation will almost assuredly ignite some form of controversy. The Affordable Care Act (ACA), also known as ObamaCare, is certainly no different. One of the most contentious parts of the ACA is known as the “individual mandate” – that every American has to have qualified health insurance coverage or they will face a tax penalty. The only way to avoid the tax penalty is to receive an exemption from the mandate.
Many people have begun to refer to these exemptions as being “exempt from ObamaCare.” This wording is not quite accurate. No American is exempt from the ACA law; however individuals can be exempt from the penalty for not having qualified health insurance.
Reasons for an Exemption from the Individual Mandate
Although the ObamaCare tax penalty starts out relatively modest, it grows quickly in successive years. In 2014, the fee is the higher of 1% of income or $95 per uninsured adult ($47.50 per uninsured child under 18). By 2016, the tax penalty is the higher of 2.5% of income or $695 per uninsured adult. Avoiding this tax penalty is important for Americans who cannot obtain health insurance.
There are many reasons why a citizen might need an exemption. Exemptions exist for financial, religious, legal, and a variety of other situations. Here are some of the circumstances that may warrant an exemption:
- You’re uninsured for less than 3 months in the year
- The lowest price coverage available to you would be more than 8% of your income
- Your income is too low to require a tax return
- You’re a member of a federally recognized Native American tribe, or are eligible for health services through and Indian Health Services provider.
- You’re a member of a recognized health care sharing ministry
- You’re a member of a recognized religious sect with religious objections to insurance, including Social Security and Medicare
- You’re incarcerated and are not awaiting a disposition to the charges against you
- You’re not lawfully present in the United States
Obtaining a Hardship Exemption
A hardship exemption is a specific type exemption based on particular circumstances. Here is a partial list of hardship events that can cause you to be exempt from the tax penalty:
- You were homeless
- You received a shut-off notice from a utility company
- You filed for bankruptcy in the past 6 months
- You were determined ineligible for Medicaid because your state did not expand the Medicaid guidelines as envisioned in the ACA
- Your individual insurance plan was cancelled and you feel Marketplace options are unaffordable
- You recently experienced domestic violence
- You recently experienced the death of a close family member
For a full list of the hardship exemption events, visit the federal exemptions site.
Applying for an Exemption
The federal website has a list of forms available for applying for exemptions of various types. Depending on the circumstances, the questions and information required vary a great deal. Rather than filling out a form, you can also choose to apply for the exemption when you fill out your 2014 taxes at the beginning of 2015.
It’s important to note that obtaining an exemption from the individual mandate does not provide coverage in case of a health need. The individual would still need to take care of their medical bills themselves. Some types of exemptions allow you to purchase a catastrophic policy, which has a high deductible and lower monthly payments, but this purchase is separate from the exemption itself.
Finally, keep in mind that many exemptions are short-term and may need to be reviewed yearly. In the case of a recent death or bankruptcy, for instance, the exemption will most likely end at the next enrollment period. This would mean that you would then need to obtain qualified insurance or pay the tax penalty.
The individual mandate caused a lot of controversy when the ACA was passed, and was even challenged all the way up to the Supreme Court. However, since the mandate was upheld, it is now law. Americans will need to obtain qualified health insurance or face a significant tax penalty over time. If this is not possible, an exemption may be the best way to avoid the tax penalty without obtaining health insurance coverage.