In the 2014 tax season – for the first time – tax returns include information about health insurance. For most insured Americans, reporting coverage to the IRS will be a very simple process.
But what if you didn’t have health insurance in 2014? There’s a tax penalty for not having coverage, but there’s a good chance you’ll be able to qualify for an exemption from the penalty. The IRS expects that 3 to 6 million people will be subject to the penalty for 2014, while 15 to 30 million will be exempt from the penalty despite being uninsured last year.
How do I get an penalty exemption?
You’re granted some exemptions by the IRS when you file your taxes; some exemptions come from the exchange; some can be obtained either way.
If you request – and are granted – an exemption from the exchange, the exchange will send you an exemption certificate number (ECN), which you’ll use to complete Part 1 of Form 8965 when you file your taxes.
If possible, request an exemption from the exchange well in advance of filing your taxes, so that you’ll have the ECN by the time you file (or, if the exemption is denied, you’ll know before filing your taxes). But if you haven’t received your ECN by the time you file your tax return, you can write “pending” on form 8965 in column C where the ECN would go.
If you’re requesting an exemption directly from the IRS, you’ll simply complete form 8965 (part 2 or 3) and file it along with your tax return.
Exemptions you get from the exchange
- Religious exemption
- Hardship exemption
- Your policy was cancelled because it didn’t meet the ACA’s requirements, and you consider an ACA-compliant plan to be too expensive. This exemption is valid through October 2016.
- You’re a volunteer with AmeriCorps, VISTA, or the National Civilian Community Corps, with a short-term plan through the volunteer organization. (Short-term coverage is not considered minimum essential coverage and would normally result in a penalty.) Volunteers in these programs also qualify for special enrollment periods to obtain ACA-compliant coverage at the start or end of their service.
Exemptions you get from the IRS when you file taxes
- You had one short gap in coverage, not more than three months long. (For 2014 only, the gap can be four months if you enrolled in a plan – including CHIP – by the end of open enrollment and had coverage effective May 1).
- Your income is below the tax filing threshold (you’re automatically exempt from the penalty. But if you’re in a state that has expanded Medicaid, you’re probably eligible for free coverage).
- You lived entirely or mostly (at least 330 days of the year) outside the United States, or you’re not legally present in the U.S.
- Coverage is unaffordable for your household because of the family glitch.
- You were enrolled in limited benefit Medicaid or TRICARE Line of Duty, neither of which provide minimum essential coverage (regular Medicaid and TRICARE plans do provide minimum essential coverage, and this exemption is only available for 2014).
- Your employer’s plan isn’t calendar year-based, you didn’t enroll in 2013, and couldn’t enroll in 2014 until the plan renewal date. This is a one-time exemption for 2014 only.
Exemptions granted by the exchange or the IRS
- The lowest-cost plan would have been more than 8 percent of your household income. You can get this exemption from the exchange based on your projected income for the year, or from the IRS when you file your taxes, based on your actual income.
- You would have been eligible for Medicaid (because your household income is under 138 percent of poverty level), but were deemed ineligible solely because your state did not expand Medicaid.
- You were enrolled in a health care sharing ministry, described in 5000A(d)(2)(B).
- You’re an American Indian or Alaska Native. (Additional beneficial provisions in the ACA apply though, and will likely be more helpful than the penalty exemption.)
- You were incarcerated.