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Understanding the Health Care Exemption Form

        Money | Taxes

Who Needs to Apply for an Exemption?
Navigator Elisabeth Benjamin (R) helps a woman find a health care plan at the Community Service Society in New York.
Navigator Elisabeth Benjamin (R) helps a woman find a health care plan at the Community Service Society in New York.

Since the individual mandate is such a cornerstone of the Affordable Care Act (ACA), the federal government has strict criteria for exemptions from the penalty. To qualify for most exemptions, you need to fill out a paper application and mail it into the health insurance marketplace for approval. If your application is approved, you will receive an exemption certificate number that must be included on your tax return. In some cases, though, the exemption is granted without an application.

Here are some categories of people who don't need to apply for an exemption [source:]:

  • Low-income households are exempt from the penalty if they earn less than the filing threshold for their tax status. In the 2014 tax year, for example, the filing threshold for a married couple both under 65 filing jointly is $20,300 [source: IRS]. If a couple earns less than that amount, they don't have to file taxes, and they are automatically exempt from the requirement to buy health insurance.
  • People who are uninsured during the tax for less than three months are also exempt from the penalty. Small gaps in coverage are allowed under the ACA law.
  • People who are not "lawfully present" in the U.S. — meaning undocumented residents — are exempt from the penalty because they cannot buy health insurance through the marketplace. (Yes, undocumented workers are supposed to file taxes, too.)

Taxpayers who don't have to apply for these "automatic" exemptions still need to claim them on their tax returns. The 2014 federal income tax return (Form 1040) contains a new line 61 called "health care." If you have coverage for the whole year, you check the "full-year coverage" box and move on. However, if you want to claim an exemption from the penalty — for low income or a gap in coverage — you need to attach a Form 8965.

A paper application is required to claim all other exemptions from the individual mandate penalty. Separate applications exist for the following individuals and situations [source:]:

  • People who have suffered a hardship (such as death or illness of family member, fire or theft, or homelessness)
  • People who cannot afford any of the plans available through the online health insurance marketplace. "Unaffordable" plans amount to more than 8 percent of the household gross income
  • Members of a recognized Native American or Alaskan tribe who receive services through an Indian health care provider
  • Members of religious groups whose members object to insurance
  • Members of a health care sharing ministry
  • People who are incarcerated

Let's start by looking at the forms and required documentation for people who are claiming a hardship exemption