How Hardship Exemption Works

Minimum Health Care Coverage and Penalties

Didn't qualify for hardship exemption, huh? Bust out your calculator and let's figure out how much you owe.
Didn't qualify for hardship exemption, huh? Bust out your calculator and let's figure out how much you owe.

At this point, you're probably wondering what counts as minimum health care coverage. The IRS provides a full list, but essentially it includes the following:

  • Any insurance you get from your employer (or your spouse's employer), including COBRA or retiree coverage
  • Any private health insurance you purchase yourself
  • Most government health coverage programs, including Medicare Part A, Medicare Advantage plans, veterans' health plans, many types of Medicaid and several other programs

Insurance that offers only limited coverage, like dental only, workers' comp, disability insurance and certain limited Medicaid programs, does not count as minimum coverage under the Affordable Care Act.

If you don't have minimum coverage for a certain period of time, and you don't meet any of the exemptions (which we'll discuss in more detail shortly), you'll have to submit payment when you file your federal income tax return in April. Calculating the exact amount of the fee requires a little math, but it's not too complicated.

When filing your 2014 return, the amount is either 1 percent of your annual income above the filing threshold for your age and family (that is, the minimum amount of money you have to make to be required to file a federal tax return), or a flat rate of $95 per adult and $47.50 per child, limited to $285 for a single family (no matter how many kids). Whichever is higher, the 1 percent or the flat rate, is the amount used.

To calculate, take your income for the year and subtract your filing threshold. For example, the 2014 filing threshold for a single person under age 65 is $10,150. So if you made $45,000 that year, the relevant amount would be $34,850. Calculate 1 percent of that amount – in our example, $348.50. That's higher than the flat rate of $95 for a single adult, so that's the number we're working with. Finally, divide that number by 12, which in this case is $29.04. That's the fee for each month you didn't have minimum coverage. If you didn't have coverage for the entire year, the fee would be $348.50. If you didn't have coverage for five months, the fee would be $145.20.

For families, it's the same but your calculation is based on household income, and the flat rate is a little higher, as we just described. The final fee (1/12 of either your 1 percent of above threshold income or the flat rate) covers your whole family for each month the family is uninsured. Let's say your family qualifies for the flat rate of $285, and you all were uninsured for six months, you'd owe $142.50.

The Affordable Care Act also incorporated an overall cap for fees. According to the IRS, that cap is based on "the cost of the national average premium for a bronze level health plan available through the Marketplace," but that cap is so high you'd have to be making a lot of money but somehow also not have health insurance for it to be relevant.

Up next, exemptions from the shared responsibility payment.