2014 is the first year that individuals in the U.S. may have to pay a penalty if they don’t have sufficient health insurance under the Affordable Care Act.
If you have minimum essential coverage through your employer or that you’ve purchased on your own or through your state’s marketplace, you likely don’t need to worry about this penalty.
If you’re uninsured for three or more consecutive months in 2014, however, it’s important to know how much the health insurance penalty, also known as individual responsibility payment, is, and whether you may qualify for an exemption.
Worst-case scenario: You have to pay the penalty
If you don’t have minimum essential coverage in 2014, and you don’t qualify for any of the exceptions to a penalty, you may have to pay a penalty when you file your income tax return due April 15, 2015.
The amount you owe will be calculated on your return. If you receive a federal refund, the penalty will reduce your refund amount.
If you do not receive a refund, or if your refund amount is less than the penalty, you may owe the IRS money.
The maximum penalty for 2014 is the larger of the following two amounts:
- 1% of your household income in 2014, or
- $95 per uninsured adult, plus $47.50 for each uninsured child under 18, or up to $285 per family.
If you don’t pay the penalty, the IRS will hold back your fee from future tax refunds.
Do you qualify for an exemption?
You may not have to pay the penalty if one of the following applies to you:
- You are without insurance for less than three months of the year. This rule explains the rush around March 31 to get insurance coverage.
- The cheapest available coverage cost more than 8% of your household income.
- Your income is below certain limits i.e., you’re not required to file a tax return because your income is too low.
- You are a member of a federally recognized tribe or you qualify for medical services through an Indian Health Services provider.
- You belong to a recognized health care sharing ministry, in which members pool their funds and pay each other’s major medical bills.
- You belong to a recognized religious sect that objects to insurance.
- You’re being detained or jailed.
- You are not legally in the U.S.
- You qualify for a “hardship exemption.”
What’s a hardship exemption?
If you’ve experienced the following, you may qualify for a hardship exemption:
- Eviction or facing eviction or foreclosure in the past six months
- Shut-off notices from a utility company
- Domestic violence
- Death of a close family member
- Fire, flood, or other disaster that substantially damaged your property
- Bankruptcy within the last six months
- Medical expenses resulting in substantial debt in the last 24 months
- Unexpected increases in necessary expenses because you were caring for an ill, disabled, or aging family member
You also qualify for a hardship exemption if your coverage or coverage of your dependents slips through the cracks somehow.
For example, if your state didn’t expand eligibility for Medicaid and therefore you could not get coverage, or a child was denied coverage in Medicaid and CHIP and someone else is required to provide medical coverage to the child.
You may also be able to claim a hardship exemption if your plan was cancelled and you believe the Marketplace plans are unaffordable, or if you experience other hardships in obtaining health insurance.
How do I apply for an exemption?
In some cases, you don’t need to do anything to get an exemption to paying the penalty.
That’s the case if you’re not required to file a tax return because your income is too low, if you’re without insurance for less than three months, or if you are not lawfully in the U.S.
If you qualify for an exemption based on membership in a religious sect, because you receive services through an Indian health care provider, or based on a hardship exemption, you must apply for the exemption.
Exemptions will be given on a month-by-month basis. If your exemption is granted, you’ll receive an Exemption Certificate Number, or ECN, that you report on your tax return.
Marketplaces are accepting exemption applications now so apply today!
It should take one or two weeks to process applications but it could take much longer if your application is incomplete, if you do not submit all necessary documentation, or your situation requires special review.
Bottom line is that you should apply for an exemption now so that you don’t delay your tax return filing and federal refund.
If coverage is unaffordable, you belong to a health care sharing ministry, you are a member of a federally recognized tribe, or you are incarcerated, you have two options: You can apply for an exemption now, or you can just claim the exemptions when filing your 2014 federal income tax return.