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Tax Exemptions and the Affordable Care Act

        Money | Taxes

Hardship Exemptions From the Individual Mandate Penalty
Angel Rivera (L) and his wife Wilma Rivera sit with Amada Cantera, an insurance agent with Sunshine Life and Health Advisors as they try to purchase health insurance under the Affordable Care Act in Miami.
Angel Rivera (L) and his wife Wilma Rivera sit with Amada Cantera, an insurance agent with Sunshine Life and Health Advisors as they try to purchase health insurance under the Affordable Care Act in Miami.
Joe Raedle/Getty Images

Even the bureaucrats in Washington recognize that there are certain life situations in which it's difficult to buy health insurance. The Affordable Care Act (ACA) contains a long list of temporary exemptions to the individual mandate provision for people who have suffered serious hardships.

Qualifying hardships include [source: Healthcare.gov]:

  • Homelessness
  • Eviction, foreclosure or bankruptcy in the past six months
  • Domestic violence
  • Death or life-threatening illness of a close family member
  • Fire, flood or other natural disaster
  • Overwhelming medical expenses for yourself or a family member
  • A shutoff notice from a utility

Count yourself lucky if you don't qualify for any of those exemptions. The ACA also includes exemptions for people who fall between the cracks of the health care law as it's rolled out in individual states. For example, 23 states have not accepted federal funds to expand their Medicaid coverage to more low-income adults [source: Kaiser Family Foundation]. If you live in one of those states and would have been eligible for coverage under the rules of the expansion, you are exempt from paying the penalty [source: Healthcare.gov].

Other taxpayers tried to sign up for a plan using the online marketplace but were denied tax credits to help cover the costs. Through an appeals process, they eventually won approval for the credits. The ACA exempts such individuals from the penalty during the months they were uninsured and appealing their eligibility [source: Healthcare.gov].

A final category of exempt individuals had their catastrophic coverage plans cancelled by their provider and can't find an affordable substitute on the online marketplace. Catastrophic coverage plans have low monthly deductibles and serve to protect the insured from only the highest health care costs. If you qualify for this hardship exemption, you are excused from paying the penalty and you are given access to the lowest rate catastrophic plans in the marketplace [source: Healthcare.gov].

To claim any of these hardship exemptions, taxpayers need to complete and mail in a paper application to the health insurance marketplace. Some hardship exemptions require support documentation like a bankruptcy filing, a death notice, or a copy of a police or fire report. This claim should be done sooner rather than later because the taxpayer needs to receive an exemption certificate number from the marketplace to include with his or her federal tax filing.

For lots more information about the Affordable Care Act and other little understood changes to U.S. tax law, check out the related HowStuffWorks links on the next page.


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