If you didn’t carry qualifying health insurance last year, then you could be facing a stiff Obamacare penalty tax when you go to file your returns this year. The penalty could be anywhere from a couple hundred dollars to a few thousand depending on your income.
So can you avoid the Obamacare tax penalty? Actually, yes. There are, in fact, 19 different exemptions that allow you to avoid the tax.
For example, you can avoid the Obamacare tax if you are a member of a health care sharing ministry like Medi-Share. You can also avoid the tax if you were incarcerated.
Here’s where it gets interesting… One of the 19 different exemptions is a “General Hardship” category, which includes an additional 14 exemptions (all of which are listed below).
Best part: Some of these exemptions are financial hardship exemptions that ordinary middle class families may qualify for. As you review the list below, pay special attention to #14, which is a “catch-all” category that could give just about any family a way to avoid the tax.
|Hardship Exemption||Documentation Required|
|1. You were homeless.||None.|
|2. You were evicted in the past 6 months or were facing eviction or foreclosure.||Copy of eviction or foreclosure notice.|
|3. You received a shut-off notice from a utility company.||Copy of shut-off notice from utility company.|
|4. You recently experienced domestic violence.||None.|
|5. You recently experienced the death of a close family member.||Copy of death certificate, copy of death notice from newspaper, or copy of other official notice of death.|
|6. You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property.||Copy of police or fire report, insurance claim, or other document from government agency, private entity, or news source documenting event.|
|7. You filed for bankruptcy in the last 6 months.||Copy of bankruptcy filing.|
|8. You had medical expenses you couldn’t pay in the last 24 months that resulted in substantial debt.||Copies of medical bills.|
|9. You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member.||Copies of receipts related to care.|
|10. You expect to claim a child as a tax dependent who’s been denied coverage in 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 the pay the penalty for the child.||Copy of medical support order AND copies of eligibility notices for Medicaid and CHIP showing that the child has been denied coverage.|
|11. 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.||Copy of notice of appeals decision.|
|12. You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the Affordable Care Act.||Copy of notice of denial of eligibility for Medicaid.|
|13. Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable.||Copy of cancellation notice.|
|14. You experienced another hardship in obtaining health insurance.||Please submit documentation if possible.|
The last exemption could apply to you if you tried to get health insurance, but were denied for some reason. It might even apply if you could not find an affordable health insurance plan — regardless of whether your previous plan was cancelled or not (see #13).
Due to the number of exemptions available, it’s currently estimated that 87% of uninsured people will not have to pay the Obamacare tax.
Almost none of the uninsured will end up paying the ObamaCare mandate penalty, according to an updated analysis by the Congressional Budget Office, which found that 87% will be able to claim an exemption.
That exemption rate is higher than the CBO had previously thought, which not only blows a hole in its budget forecast for the law, but also increases the odds of an insurance industry “death spiral.”
According to the CBO’s latest estimate, out of the 30 million people who will still be uninsured in 2016, just 4 million will end up paying any tax penalty, despite the law’s requirement that everyone buy government-approved insurance.
I have personally availed myself of a hardship exemption to avoid the Obamacare tax penalty this year. And since the penalties will be much higher next year when filing 2015 tax returns, chances are I will once again apply for Medi-Share this year.
Hopefully, by the time 2016 rolls around, Obamacare will be completely dismantled (or repealed) and we won’t have to worry about being forced to buy specific insurance products, tax penalties, or hardship exemptions. Hey, I can dream, right?