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Don’t Want to Buy Health Insurance? Look Into Market Place Hardship Exemptions

If you can afford health insurance but you don’t wish to buy it expect a higher federal income tax bill for 2015. Under the Affordable Care Act, unless you have a health coverage exemption, the IRS will assess an additional penalty, using the higher result of the following two criteria:

  • 2% of your yearly earnings: The amount of income above about $10,150, the tax-filing threshold, is what you use to calculate the penalty. The amount is capped according to what the IRS figures is the “average bronze plan premium.”
  • $325 per person for 2015–$162.50 per child under age 18: The maximum family penalty per family using this method is $975.

health tax exemptions

What qualifies as health coverage–and what does not

Most health plans, including any Marketplace plan, or individual insurance plan you already have qualifies as coverage. Any job-based or retirement plans, Medicare Parts A or C, and TRICARE plans for military retirees also qualify.

Not all plans offered outside the Marketplace will qualify for minimum essential coverage, though.

Plans that would not qualify include:

  • health plans that cover a fixed, limited term
  • health plans that have fixed benefit restrictions
  • Medicare supplemental plans only, like Part D and Medigap
  • certain Medicaid schemes covering only specific benefits
  • limited-benefit plans, e.g., vision only, dental only

Exemptions and how to get them

For tax year 2015, you can apply for an exemption to avoid paying the tax penalty. The exemptions are income, health, and group membership related. They also cover anyone serving a prison sentence, U.S. citizens living abroad, and certain non-citizens.

Income-related

You could qualify for an income-related exemption if:

  • the least expensive health coverage available (Marketplace or job-based) would amount to more than 8.05 percent of your household income
  • you do not earn enough to be required to file an income tax return

Health coverage related

These apply when:

    • your lack of health insurance coverage was for no more than two consecutive months
    • your home state failed to expand its Medicaid program to meet the requirements of the Affordable Care Act, but if it had, you would have qualified

Group membership related

Certain groups are exempted:

    • members of a federally recognized Native American tribes
    • members of a recognized health care sharing ministry
    • religious sects that object to health insurance, Medicare and Social Security

Hardship exemptions

Some life situations can prevent you from getting health insurance. Examples of hardships that qualify include homelessness, eviction or foreclosure, domestic violence, natural disaster, family tragedy, etc.

To qualify for a hardship exemption, you must complete a paper application and mail it to the Marketplace. For a list of qualifying hardships and instructions on how to apply, go to the Healthcare.gov webpage.

Loss of previous coverage

Likewise, if your insurance company canceled your plan, and you believe other Marketplace plans are unaffordable, you can apply for an exemption. The above-mentioned 8.05 percent of the household income criteria applies.

You can apply for this exemption either on your 2015 income tax return or completing a separate Marketplace exemption application. Download the application forms and instructions from the Marketplace.cms.gov website.

Need some help?

Your health coverage now affects your 2015 federal income tax return. The fees for not having health insurance could be another unexpected financial hit. Need some help or advice on addressing tax implications on yourself, your family or your employees? Dukhon Tax and Accounting has the expertise and experience to help you through tax year 2015 and beyond with the plans and strategies you need for the best tax planning.

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