Tax Exemptions and the Affordable Care Act

Financial and Religious Exemptions From the Individual Mandate Penalty

The individual mandate penalty, also known as the "individual shared responsibility payment," is collected as a tax. Congress has authorized the IRS to allow taxpayers to claim an exemption from the penalty for financial or religious reasons, and also for a number of personal reasons known as hardship exemptions.

Let's start with the financial exemptions. The first and surely the most common exemption from the individual mandate provision is extended to anyone who doesn't make enough money to file a federal income tax return. The minimum filing threshold in 2014 for a single filer under 65 is $10,150 and twice that amount for a married couple filing jointly. The thresholds are slightly higher for people over 65 [source: IRS]. If you don't have to file a tax return, you don't have to pay the penalty.

The second financial exemption is for taxpayers who can't find an affordable health insurance plan. If you shopped for a health care plan on the online marketplace, but the cheapest plan in your area cost more that 8 percent of your household income, you are exempt from paying the penalty if you choose not to buy insurance [source:].

Affiliation with certain ethnic and religious groups can also gain you an exemption from the individual mandate penalty [source:, Alliance of Health Care Sharing Ministries]:

  • Members of federally recognized Native American tribes are exempt if they receive medical care through an Indian Health Services provider.
  • Members of a recognized health care sharing ministry are also exempt. These religious organizations pool the resources of members and distribute funds to cover one another's medical expenses.
  • Members of religious sects with long-held objections to insurance and/or medical care are exempt.

Finally, there are exemptions for people who were uninsured for part of the year, but not more than three months. The IRS allows a grace period for people who experience a small gap in coverage for a variety of reasons.

All of these exemptions can be claimed on the new Form 8965, which must be filed along with the 1040 tax return in 2015. Some of the exemptions -- including the provisions for members of certain religious groups and tribes -- can be claimed directly in the health care online marketplace. For further clarification, read the full instructions for applying for an exemption.

Next, we'll explore an entirely separate category of ACA exemptions called hardship exemptions.