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Every eligible American is required to have at least a basic health insurance plan, according to the Affordable Care Act of 2010. Those who fail to meet the mandate are subject to penalties when they file their tax returns. It is a heavy burden for millions of Americans who do not have employer-provided health insurance.

There is a silver lining though. Those who meet certain requirements are exempt from the requirement. In fact, the IRS reported Jan 2017 that for the tax year 2016, over 12 million tax filers were able to avoid the penalty with exemptions claimed on their tax return.

The list of exemptions available falls into five different categories.


Hardship Exemptions

In this category, you will find that those who are homeless, filed for bankruptcy, were facing eviction or a foreclosure or received a notice from a utility company that their service was being shut-off, fall under the “Hardship Exemption.” As we can imagine, those facing these circumstances have immediate needs that take priority over having health insurance.

Also, those who suffered domestic violence, the death of a family member or a natural disaster also qualify to be exempt from the mandate.

Other hardships that also qualify for exemption consideration are; a) Tax filers who had medical expenses they couldn’t pay which resulted in substantial debt. b) Those who experienced unforeseen expenses due to caring for a family member who was aging, who was ill or was disabled. c) Your grandfathered individual insurance plan was canceled because it failed to meet the requirement for the ACA. d). Those eligible for subsidies, but the insurance company failed to provide them, and insurance was not available as a result.

You may want to know how long hardship exemptions last. The period of coverage begins the month prior to the hardship. It lasts through the hardship and extends one month beyond the hardship event. In the following cases, the Marketplace may provide additional months of exemption coverage, up to a complete calendar year:

  1. Those ineligible for Medicaid only as a result of their state of residence having failed to expand Medicaid coverage, this extends the exemption for that entire calendar year.
  2. People under 21 who qualify due to religious
  3. Those eligible for Indian Health Services have the exemption available as long as they remain eligible.


Income Related Exemptions

Those who don’t earn enough income during the year to be required to file a tax return will not face a penalty.

Tax filers whose cost of insurance, whether through a job-based or a Marketplace plan, would cost in excess of 8.16% of the household’s income, can qualify for either the Job-based affordability exemption or the Marketplace affordability exemption.


Group Membership Exemptions

Members of qualified health care sharing ministries will not face penalties.

Members of federally recognized tribes or those eligible for services through an Indian Health Services Provider are also exempt from penalties.


Exemptions Related to Health Coverage

Residents of states that did not expand its Medicaid program and the tax filer’s income falls below 138% of that state’s poverty level are exempt.


Legal Status Based Exemptions

Tax filers will not face penalties if they were incarcerated or residing abroad. U.S. Tax laws apply to all income earners, whether they are here legally or not. Undocumented immigrants must file a return if the minimum earnings threshold to file is met, however, they are excluded from the coverage requirement. They are also unable to obtain insurance through the marketplaces set up by the ACA.


How to apply for these exemptions:

There are two ways to apply for the exemptions so that the penalty can be avoided. Claim on your tax return or apply through the Marketplace. Most of the exemptions are claimed on the tax return at filing time. A qualified tax professional is the best source for accurate information for each taxpayer’s options. It is worth noting that for the tax year 2017, the IRS will not consider a return fully completed and accurate if the filer does not provide coverage details, proof of being exempt or payment of the penalty.


What happens if a tax filer does not qualify for any of the exemptions?

Those who choose to go without insurance and don’t qualify for exemptions may owe the shared responsibility penalty payment when they file their tax return.

To learn more about Obamacare Exemptions, or to see if you qualify for one, contact the experts at at 800-948-4256. Our licensed health insurance experts will be happy to answer any questions you have.