5 Things You Should Know About Obamacare and Exemptions

Source: iStock
Source: iStock

Starting last year, the Affordable Care Act requires individuals to obtain qualifying health coverage (also known as minimum essential coverage) for each month or pay a fine upon filing their federal tax returns.

If you did not have health insurance last year, you’ll pay 1% of your annual household income or $95 per household member ($47.50 per child under the age of 18), up to $285, whichever is higher. If you don’t have coverage in 2015, you’ll be required to pay 2% of your annual household income or $325 per household member (the fee for household members under the age of 18 is $162.50) up to $975, whichever dollar amount is higher.

If you opted not to enroll in qualifying health coverage, in some cases you might be able to get an exemption from the individual shared responsibility mandate. This exemption can be claimed on your federal tax return. However, some exemptions can only be claimed through the health insurance marketplace.

Here are a few things to keep in mind.

1. Know what counts as minimum essential coverage

The IRS says most coverage obtained through an employer, purchased through the health insurance marketplace, and government-sponsored insurance (such as Medicaid and Medicare) qualify as minimum essential coverage. You are also considered to have met minimum essential coverage requirements if you are enrolled in a health plan that was obtained directly through a private insurance company.

2. Understand coverage periods

The IRS says even if you only have coverage for one day out of a month, you are considered to be covered for that entire month.  Similarly, if you qualify for a health coverage exemption for any one day of a month, you will be considered exempt for the whole month.

3. Unpaid medical expenses might qualify for an exemption

If you had health care expenses you were unable to pay over the last two years and you are facing significant debt, you might be able to avoid a penalty for not meeting the individual shared responsibility mandate. If you qualify, you will not have to pay the fine during the months you were uninsured. However, in order to meet qualifications, you will have to submit copies of medical expenses you were not able to pay.

4. If you are experiencing financial hardship, you have options

You might be able to get a financial hardship exemption if you had health coverage that was recently canceled but the options available through the health insurance marketplace are too expensive. If the monthly premium for a marketplace plan would be more than 8% of your total household income, this would qualify as expensive, according to the Internal Revenue Service.

In this case, you may be eligible to purchase a catastrophic health plan. The premiums are lower and the plan provides a cushion against high health care costs. These plans cover three annual primary care visits (free of charge) in addition to free preventive care.

There are 14 different types of hardship exemptions. You will likely qualify for an exemption if you are the victim of domestic violence, homeless, evicted within the last 6 months or facing eviction or foreclosure, or you filed for bankruptcy within the last 6 months. Visit healthcare.gov for additional details about qualifying exemptions. You will be required to fill out an application for hardship exemption in addition to IRS Form 8965.

5. Free tax help is available

If you’re experiencing difficulty paying for tax-preparation services, there is help available for you. Know that you may also be eligible for free tax-preparation software through Free File. In addition, you may be able to take advantage of services provided by your local Volunteer Income Tax Assistance Program. Services are generally provided to those who earn $53,000 or less, are disabled, elderly, or have limited ability speaking English. You can find a local center here.  You can also locate a center when you call 888-227-7669.
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