Exemptions from the Shared Responsibility Payment
12 exceptions to avoid the penalty for not having health insurance
Individuals have been required by federal law to purchase health insurance for themselves and their dependents since January 1, 2014. Whether you call it Obamacare or the Affordable Care Act, the rule remains the same: Individuals who don't have health insurance for one or more months during the tax year may have to pay an additional tax, called the individual shared responsibility payment. This payment is essentially a penalty for not having health insurance, but it doesn't apply to everyone. The taxpayers listed here are exempt.
The Religious Exemption
Persons who are members of a religious sect who have conscientious objections to insurance do not have to carry insurance or pay the penalty. These conscientious objectors must obtain an exemption certification issued by a health insurance exchange. To qualify, you must be a member of and adhere to the teachings of a religious sect that is "conscientiously opposed to acceptance of the benefits of any private or public insurance which makes payments in the event of death, disability, old-age, or retirement or makes payments toward the cost of, or provides services for, medical care," according to Internal Revenue Code section 1402(g)(1).
You may already have applied for and received exemption from Social Security and Medicare taxes, but you must apply separately for exemption from health insurance. Visit the Centers for Medicare and Medicaid Services' website and fill out their application for a religious sect exemption if you believe you qualify.
Health Care Sharing Ministries
Persons who are members of a health care sharing ministry are exempt. These individuals share medical expenses among themselves as members of the ministry. To apply for this exemption, you can either submit a sharing ministry exemption application to the Centers for Medicare and Medicaid Services or you can claim it when you file your federal tax return.
Nonresident Aliens and Persons Not Lawfully Present in the U.S.
This does not mean you're not physically residing in the U.S., although there's an exemption for that, too. It means you're not here legally because you're an illegal alien. Nonresident aliens are also exempt.
Prisoners are exempt from the shared responsibility payment if they are incarcerated after the disposition of the charges against them. They do not qualify if they're in jail pending trial. You can either claim this exemption when you're filing your federal tax return or you can submit an application for an incarceration exemption. The application is available on the Centers for Medicare and Medicaid Services website.
Persons Who Cannot Afford Health Insurance Coverage
If the cost of health insurance is unaffordable for you—by IRS standards, not necessarily in your own estimation—you're exempt. The federal government considers that health insurance is unaffordable if the cost exceeds 8.05 percent of your household income. The percentage is based on changes in health insurance costs and it's been set at this rate since 2015. Check the IRS website periodically to make sure it hasn't changed.
Persons With Less Income Than the Filing Threshold for the Year
If your income is below the filing requirement threshold, you're exempt. You're not required to file a return, but if you do, you can indicate your exemption on the return. The threshold depends on your age and filing status. As of 2017, it ranges from $4,050 if you're married and would file separately to $10,350 for a single individual under age 65 and $23,200 for married taxpayers filing jointly who are both 65 or older.
Members of Native American Tribes
Native Americans are exempt from the shared responsibility payment provided that they are are registered members of an Indian tribe.
Persons Experiencing Hardship
Individuals who are facing hardship may request an exemption from the shared responsibility payment. Healthcare.gov lists 14 types of hardships for which you can request a certificate of exemption:
- "You were homeless.
- You were evicted in the past 6 months or were facing eviction or foreclosure.
- You received a shut-off notice from a utility company.
- You recently experienced domestic violence.
- You recently experienced the death of a close family member.
- You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property.
- You filed for bankruptcy in the last 6 months.
- You had medical expenses you couldn’t pay in the last 24 months which resulted in substantial debt.
- You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member.
- You expect to claim a child as a tax dependent who’s been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child. In this case, you do not have the pay the penalty for the child.
- As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace.
- You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the Affordable Care Act.
- Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable.
- You experienced another hardship in obtaining health insurance."
Submit an application for a hardship exemption to request a waiver. It's available on the Centers for Medicare and Medicaid Services website. Hardship waivers remain in effect only for the calendar year in which you apply for an exemption, so if your circumstances continue beyond the current tax year, you'll have to apply again.
Persons With a Short-Term Coverage Gap
Persons who did not have health insurance coverage but the lapse was for less than three continuous month are exempt from the shared responsibility payment. If the coverage gap lasts for three continuous months or longer, however, none of those months can be used towards the exemption. If there are several gaps during the year, only the earliest short-term gap qualifies. It's considered a coverage gap even if you do not have health insurance coverage for just a single day during the month
Here's an example: Daniel has health insurance from January 1 through March 2. He isn't covered by health insurance again until June 15th, and he remains covered under this new health insurance policy through the end of the year. Daniel's coverage gap consists of the months of April and May (two months). March and June are not included in the number of gap months because he was covered by a health plan for at least one day during those months. Since Daniel's coverage gap lasts less than three months, he will be exempt from the shared responsibility payment due to the short-term gap exception.
Citizens and Resident Aliens Residing Outside the U.S.
Citizens and resident aliens living abroad are exempt from the health insurance mandate and will not be penalized for not having health insurance. An American living abroad is exempt from the shared responsibility penalty for each month that he is either a bona fide resident of another country or he meets the physical presence test for that month. Both the bona fide residence test and the physical presence test have the same meaning as when used in the context of the foreign earned income exclusion.
Residents of the American territories of Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, or the Virgin Islands are not required to obtain health insurance and are not be subject to the shared responsibility penalty. Specifically, such persons will need to reside at least 183 days a year in these territories.
An Important Update
Prior to February 16, 2017, taxpayers were required to note on their returns whether they had complied with the terms of the Affordable Care Act and had carried insurance coverage during the tax year, or whether they were claiming an exemption. The Internal Revenue Service would automatically reject tax returns that did not include this information.
This changed when President Donald Trump issued an executive order allowing federal agencies to effectively go easy on Americans with regard to Obamacare provisions. The IRS responded that it would no longer automatically reject these returns. In other words, disclosure became voluntary.
The executive order and the government's response does not remove your liability for carrying insurance or applying for an exemption, however. As of July 2017, the Affordable Care Act remains in full force and effect. The only change is that the IRS will have to hunt a little harder to identify taxpayers who did not have health insurance and who were not exempt. You're still subject to the shared responsibility payment if the IRS determines that you did not carry mandatory coverage and you do not qualify for any of these exemptions.
Forms and Resources
Individuals can report which exception applies to them using Form 8965.