ObamaCare or the Affordable Care Act penalizes people who have failed to purchase health insurance. When they are filing their taxes, they will have to pay a tax penalty if they have not applied for health insurance. However, people can avoid paying the tax penalty if they qualify for certain exemptions.
Understanding the Basics of Exemption
On March 23, 2010, the Affordable Care Act became effective and imposed a penalty on every citizen without insurance. Last year was the first time the government penalized those individuals who had not applied for healthcare insurance.
The government deducted the tax penalty amount from a person’s refunds and if no refunds are applicable, it is included in their tax liability. The healthcare act also stated that certain situations would make people eligible to apply for an exemption and avoid the ObamaCare penalty.
Avoiding the ObamaCare Tax Penalty
The Individual Shared Responsibility Provision or the Individual Mandate included in ObamaCare state that individuals must acquire and maintain a minimum amount of healthcare coverage during the year, qualify for an exemption, or pay a monthly fee for each month they and their family members fail to obtain healthcare coverage on their Federal Income Taxes.
If you do want to pay the monthly fee on your Federal Income taxes, you need to apply for healthcare coverage during your insurance plan’s open enrollment period. In addition, you can apply for special enrollment.
Special enrollment is applicable for individuals that have missed deadline for open enrollment, went through a change in family status, lost their healthcare plan, and suffered from a life-changing event.
This year, open enrollment for Medicaid, ObamaCare, and Medicare will start from November 1, 2015 and end on January 31, 2016. On December 31, 2015, Marketplace plans bought for 2015 will end. Therefore, people are advised to act quickly and purchase healthcare coverage before time runs out, and if they do not purchase it for some reason, they need to fit their situation into a certain exemption category to avoid paying a tax penalty.
Are You Applicable for an Exemption Under the Affordable Care Act?
You can avoid the tax penalty imposed by ObamaCare if you qualify for any of the following exemptions:
- Your income is less than the federal filing threshold total.
- You have pending medical expenses that you have not been able to pay in the previous 24 months.
- Your utility provider has sent you a notice to shut down your electricity.
- Natural disasters such as fire and flood have damaged your home in the past year.
- In the past year, your expenses have increased due to a sick, disabled, and elderly family member.
- In the last six months, you have filed for bankruptcy.
- Either you were homeless last year or you are presently homeless.
- You spent most of last year in jail.
- You were a victim of domestic violence last year.
- Your immediate family member passed away last year.
- You served in the VISTA, AmeriCorps State National, or NCCC.
- You lived outside of the United States for 330 days during a twelve-month duration.
- You either are currently facing foreclosure or have faced it in the past year.
- You have enrolled in the Medicaid or TRICARE healthcare plan.
- This year, you have been ordered by the court to claim a child as your tax dependent. You will provide the child with medical support. In other cases, people may claim a child as their tax dependent because the Children’s Health Insurance Program (CHIP) and Medicaid have denied the child healthcare coverage.
- Your healthcare provider has notified you that they are in the process of cancelling your insurance and you may not be able to afford the other healthcare plans.
- You are a member of a religious sect recognized by the Social Security Administration that forbids their followers to take out healthcare insurance.
- Your state refused to increase Medicaid coverage, resulting in your becoming ineligible to apply for Medicaid.
- Your household income is lower than the 138 percent for the size of your family and at the same time, you lived in a state that refused to expand Medicare under the Affordable Care Act.
- You went through a critical time in your life, which then prevented you from applying for healthcare coverage.
- The sum you would have paid for the premiums is greater than 8.0 percent of your entire household income.
- You belong to the health care sharing ministry.
- You are a member of an Indian tribe, recognized by the government and the Alaska Native Claims Settlement Act (ANCSA). You have obtained health care coverage from an Indian Health Service.
How Much Do You Have to Pay in Penalty Fees If You Do Not Qualify for an Exemption?
If you do not fall under any exemption category and qualify for ObamaCare, but still choose not to obtain healthcare coverage, you will be subject to a tax penalty. The IRS will calculate the penalty fee as a percentage of your yearly household income or as a flat rate. For the year 2016, the penalty fee structure looks like this:
- Percentage of Household income: 2.5%
- Per Adult: $695
- Per child under 18: $347.50
Again, the IRS will subtract the fee from your tax refund or they will add it to the tax amount you owe them. People without healthcare insurance for a few months in the year will only be penalized on the months they remained without coverage. The IRS refers this as a “short gap.” However, you can only apply for “short gap” once every year.
If you are unsure on whether you qualify for an exemption, you can consult with your accountant. Starting from next year, you can apply for healthcare insurance during open enrollment or special enrollment so you will not have to pay a tax penalty next year when 2016 becomes 2017.