If you did not have healthcare coverage then you could face a tax penalty under the Affordable Care Act, known as the "Shared Responsibility Payment." But this is not true for everyone, especially low-income households. You may qualify for an "exemption" from the Shared Responsibility Payment. In that case, you would not have to pay the penalty. Report your exempt status on Form 8965; file this with your tax return.
There are two types of exemptions. The first type must be approved by filing a paper application to the marketplace. The second type can be granted by the IRS on your tax return. If an exemption is approved by the marketplace, you will receive an exemption certificate number which is a 6 digit letter/number code that you will enter on Form 8965 when filing your return. If you are eligible for an exemption from the IRS, enter your exemption type on Form 8965 using the letters A through G. Find a chart of the exemptions and the corresponding letters in the instructions for Form 8965. The exemptions claimed on the tax return apply to both the federal and state run marketplaces.
Exemptions Granted by the Marketplace
1. Members of health care sharing ministry (also available on the return)
2. Members of Federally recognized Indian tribes or eligible for Indian health care services (also available on the return)
3. Incarceration (also available on the return) can be claimed for any months someone on the tax return was in jail, prison, or a similar penal institution or correctional facility, for at least one day in the month (doesn’t include probation, parole, home confinement, or time in jail when you weren’t convicted of a crime)
4. Members of certain religious sects who object to insurance coverage, including Medicare and Social Security (e.g. Mennonite, Amish)
5. Determined ineligible for Medicaid in a state that did not expand Medicaid (which includes Maine). Available to low-income adults (less than 138% of the Federal Poverty Level)
- Must have applied for Medicaid before December 31, 2015, and
- Have been denied Medicaid because the state did not expand coverage.
- A person will not get an automatic exemption if:
- Applied directly to the state Medicaid agency instead of the Marketplace.
- Applied to the Marketplace but had income that was too high..
6. General Hardships that prevented you from obtaining coverage under a qualified health plan. These may be:
- Homelessness
- Eviction in the last 6 months or facing eviction or foreclosure
- Utility shut off notice
- Domestic violence
- Recent death of a close family member
- Disaster that resulted in significant property damage
- Bankruptcy in the last 6 months
- Debt from medical expenses in the last 24 months
- High expenses caring for ill, disabled or aging relative
- Failure of another party to comply with a medical support order for dependent child who is determined ineligible for Medicaid or CHIP
- Through an appeals process, determined eligible for a Marketplace QHP, PTC, or CSR but was not enrolled.
- Determined ineligible for Medicaid because the state did not expand
- Individual health insurance plan was cancelled and you believe Marketplace plans are considered unaffordable
- Other hardship in obtaining coverage (including for people in AmeriCorps, VISTA and NCCC who are enrolled limited duration or self-funded coverage)
Note: Documentation is required in most circumstances.
7. Coverage considered unaffordable based on projected income
8. Unable to renew existing coverage
9. You receive AmeriCorps coverage
Exemptions Granted by the IRS on the Return
1. Household Income below filing threshold or gross Income below filing threshold. This is the only exemption that applies to the entire household for the entire year.
- Household income is the combined taxable income for each person on the tax return with a tax filing requirement. Include dependent’s income if dependent has a filing requirement.
- Gross income is all income received from all sources unless exempt from tax. Do not include income of dependents with a filing requirement.
2. Insurance is unaffordable (more than 8% of income); this applies when:
- Compare to lowest-cost self-only employer plan.
- Compare to lowest-cost employer plan that covers everyone on the return who is eligible for coverage.
- If no employer coverage, compare to the lowest-cost bronze Marketplace plan.
- Account for any Premium Tax Credits the person would have been eligible to receive.
3. If you had a short coverage gap. If the coverage gap is 3 months or longer, it won’t qualify. If you had multiple gaps in one year, only the first one will qualify.
4. Certain noncitizens and citizens living abroad.
- Not U.S, citizens, U.S. nationals or lawfully present (i.e. undocumented immigrants)
- Individuals who are residents of U.S. territories
- U.S. citizens or residents who are absent from the U.S, for at least 330 full days within a 12 month period.
- U.S. citizens who are bona fide residents of another country for the entire tax year.
5. Members of a health care sharing ministry
6. Members of a Federally recognized Indian tribe or eligibility for services of Indian Health Service
7. Incarceration can also be claimed on the return, with the same conditions as the marketplace incarceration exemption.
8. Aggregate self-only coverage is unaffordable. This happens when individual coverage offers are affordable, but their combined cost is greater than 8% of income, and no family coverage is offered for less than 8% of income.
9. If you are a resident of a state that did not expand Medicaid (including Maine) and at any time during the last year and had income below 138% of the poverty line and would have been eligible if the state had expand Medicaid.
NOTE: These rules can change from year to year. Learn more about shared responsibility payment exemptions from the IRS.
Updated July, 2017
PTLA #592
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