The only way to avoid the penalty was to:
- Be enrolled in minimum essential coverage – you could be uninsured for a single period of up three months in a year, or
- Qualify for an exemption.
As of January 1, 2019, this changed. The federal tax penalty was eliminated.
That means even without an exemption you no longer owe a federal tax penalty if you go without ACA-qualifying minimum essential coverage.
If you’re uninsured in 2019 or later, you won’t owe a federal penalty, but healthcare is expensive, so you may still want to consider coverage to help pay for healthcare, especially for the unexpected (and often high) costs of accidents, critical illnesses, and emergencies.
What to Know if You’re Filing Federal Taxes for 2018 or Earlier
The ACA’s many health coverage exemptions still apply to coverage year 2018 and years prior. If you’re filing federal taxes for that time period you may still have some questions about exemptions and which ones may apply to you.
Please note: the materials available at this website are for informational purposes only and not for the purpose of providing legal or tax advice. You should contact your attorney or tax professional to obtain advice with respect to any particular issue or problem.
What are the Exemptions from the ACA Mandate?
There are many ACA exemptions. We’re going to cover 10 of them here, including how they are categorized and how the IRS suggests you claim or apply for one.
Following this table, we’ll get into some specifics on each type of exemption to help you identify if you may qualify.
ACA Exemptions Quick Guide
|ACA Exemption||Category||How to Obtain it Prior to Plan year 2018|
|1. Individual coverage is considered unaffordable||Income-related||Apply to the Marketplace|
|1.A. Group coverage (job- based) is unaffordable for individual and/or family||Income-related||Claim on federal tax return or Apply to the Marketplace|
|2. Annual income is below your tax filing threshold||Income-related||Claim on federal tax return via Form 8965|
|3. General Hardship (e.g., homelessness, death of family member)||Hardship||Apply to the Marketplace|
|4. Short Coverage Gap||Health coverage-related||Claim on federal tax return via Form 8965|
|5. Resident of a state that did not expand Medicaid||Health coverage-related||Claim on federal tax return: IRS instructions|
|6. Members of Indian Tribes or ANCSA Corporation Shareholder||Group Membership||Claim on federal tax return via Form 8965|
|7. Members of a healthcare sharing ministry||Group Membership||Claim on federal tax return via Form 8965|
|8. Members of a recognized religious sect||Group Membership||Apply for + get Approval from the Marketplace, then claim on federal tax return via Form 8965|
|9. Citizens living abroad and certain noncitizens||Other||Claim on federal tax return via Form 8965|
|10. Incarceration||Other||Claim on federal tax return via Form 8965|
Affordability (income-related) exemptions
In some circumstances, health insurance may be considered unaffordable. There are two possible scenarios.
1. Your income doesn’t meet tax-filing requirements—this amount varies by age and filing status. For the 2018 tax year, filing thresholds were:
- $12,000 for single individuals under age 65 and
- $24,000 for those under 65 who were married and filing jointly.
View a complete list of 2018 filing status thresholds at IRS.gov and consult with a tax professional to discuss whether or not you need to file taxes.
2. The lowest-priced major medical insurance available to you through a Marketplace or job exceeds 8.05% of your household income.
There are additional life situations that can make it financially or logistically difficult to buy health insurance, and the ACA places them in a category called hardship exemptions.
For coverage year 2018, HealthCare.gov lists the following as hardship exemptions:
- Eviction or facing eviction or foreclosure
- Receiving a shut-off notice from a utility company
- Experiencing domestic violence
- The death of a family member
- Experiencing a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property
- Filing for bankruptcy
- Having medical expenses that you couldn’t pay that resulted in substantial debt
- Unexpected increases in necessary expenses due to caring for an ill, disabled or aging family member
- Claiming a child as a tax dependent who’s been denied coverage for Medicaid and CHIP, and another person is required by court order to give medical support to the child; in this case you don’t have to pay the penalty for the child
- As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace in 2017
- You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid in 2018 under the Affordable Care Act
- The exemption for “grandfathered” individual insurance plans is no longer available for 2017 and later
- You had another hardship. If you experienced another hardship obtaining health insurance, use this form at HealthCare.gov to describe your hardship and apply for an exemption.
Members of certain groups may qualify for an exemption, including those who belong to a:
- Recognized healthcare sharing ministry
- Recognized religious sect with religious objections to insurance
- Federally recognized tribe or Alaska Native Claims Settlement Act (ANCSA) Corporation Shareholder.
There are additional exemptions, which include serving a prison or jail term, living abroad, adopting a family member and the death of a member of your tax household.
How do You Get an Exemption?
Depending on the exemption you qualify for, you will need to either claim it on your tax return, have it granted by HealthCare.gov (aka the “Marketplace”) or a state health insurance exchange or both.
The table at the top of this article briefly explains where to get each type of exemption, but you may also want to speak with a tax professional or contact HealthCare.gov or your state-based health insurance marketplace for more information.
Claimed on your tax return
In most cases, exemptions are claimed on IRS Form 8965, Health Coverage Exemptions, when you file your tax return. If you use tax software, you will receive the form after answering a series of questions about health insurance.
Once you fill it out, that’s it. Your exemption has been claimed, and no further action is needed unless requested by the IRS or your tax professional.
What if you are not required to file a tax return?
If your income is below the filing threshold, then you are automatically exempt and no action is needed. If you are not required to file a tax return and do so anyway, you will use Part II of Form 8965, Coverage Exemptions for Your Household Claimed on Your Return, and you will not make a penalty payment.
Read the IRS article “Individual Shared Responsibility Provision – Exemptions: Claiming or Reporting,” for additional details.
Granted by HealthCare.gov or a state exchange
Exemptions granted by a Marketplace include the following; click on each to see instructions and forms on HealthCare.gov:
- General hardship – Starting with coverage year 2018, you have the option to claim this exemption without submitting documentation when you file your 2018 federal tax return; however, if you prefer to apply and submit documentation you may do so as instructed at HealthCare.gov.
- Religious and group membership – Once you apply for and are approved for this exemption from the Marketplace, you must claim it on your federal tax return.
If your state does not use the HealthCare.gov platform, visit your state’s exchange website or contact your state’s exchange for application information.
If you have questions about whether or not you qualify for an exemption and how to get one, contact your state’s health insurance exchange. For tax-related help, contact a tax professional.
Options if You’re Going Without ACA Coverage
Exemptions and federal tax penalties may no longer be a concern, but unexpected costs related to healthcare services may still be.
Without health insurance, you could end up paying for everything from a visit to the doctor’s office to a multi-day hospital stay 100% out of pocket. But there are other budget-friendly options you can consider:
- Other minimum essential coverage
- Subsidized ACA health insurance
- Short term health insurance
- Non-ACA health insurance combinations
Other minimum essential coverage: Medicaid, Medicare, CHIP
Not all minimum essential coverage is major medical insurance. Medicaid, Medicare and the Children’s Health Insurance Program (CHIP) are public health insurance options that are also considered minimum essential coverage, and they are available year-round if you meet eligibility criteria. Learn more about minimum essential coverage and qualifying health plans.
Subsidized ACA Health Insurance
ACA major medical insurance is the most comprehensive health insurance available because of the essential health benefits and other consumer protections, for example, policies cover pre existing conditions. However, deductibles and monthly premiums can be quite high.
If you can afford it, it’s likely the best coverage available. You may qualify for a premium tax credit, cost-sharing reduction, or both depending on your income so it’s worth finding out. Learn all about ACA tax credits and subsidies.
Shop subsidy-eligible ACA Exchange health insurance plans.
Non-ACA coverage: Short Term Health Insurance
Short term health insurance is a type of non-ACA coverage that provides benefits for unexpected illnesses and injuries that may require emergency care or hospitalization. Benefits are typically paid to your healthcare provider, but benefits may be paid directly to you.
Some benefits of short term medical include:
- Available to apply for year-round in most states
- Policy durations are 30 days up to 3 years depending on your state
- May have lower premiums than unsubsidized ACA plans because they cover less
- Choose your own doctor or hospital without restrictions (there may be financial incentives for using in-network providers)
- There’s typically no waiting period, so you can begin coverage the next day if you qualify
- Individual, family and child-only short term medical policies are available
Some other things to keep in mind are that short term medical is not guaranteed issue. That means you may be denied coverage due to health status such as a pre existing condition. Also, policies cover few, if any, essential health benefits and these types of policies are not available at all in some states.
To find out about availability and view plans and costs, get a quick quote.
Non-ACA Combination Health Insurance Coverage
Because non-ACA insurance has more limitations and less coverage, it may make sense to apply for and enroll in a set of policies (if you qualify) or multiple healthcare products in order to increase your benefits and coverage. Of course, the more coverage you obtain, the more you’ll pay in premium.
Start with a short term medical policy if it’s available in your state, and add on additional policies and non-insurance products like:
- Hospital indemnity insurance to help with costs associated with hospitalization (only available as a supplement to major medical in some states)
- Dental insurance for routine and preventive dental care
- Vision insurance for routine eye care and corrective lenses
- Telemedicine for chronic but non-acute conditions and the convenience of virtual doctor visits (not insurance)
Contact a health insurance agent at 888.855.6837 to discuss your non-ACA health insurance options and discuss combinations that may make sense for you.
Summary + Next Steps
With the federal tax penalty eliminated, you don’t need an exemption to go without minimum essential coverage in 2019 and beyond.
Exemptions still apply for 2018 and earlier, and you may be able to claim or apply for one when filing your 2018 federal income taxes.
Call 888.855.6837 to speak with an insurance agent for help understanding your options.