Who is exempt from the individual healthcare mandate under the Affordable Care Act (ACA)?
Due to changes from the TCJA, screen 8965 is not available starting in Drake19 as the penalty for not having minimum essential coverage is zero starting in tax year 2019. No exemptions are available, or necessary, starting with tax year 2019.
The following information applies to Drake18 and prior. If the taxpayer can afford health insurance, but chooses not to purchase it, the taxpayer has to pay a fee known as the Individual Shared Responsibility Payment. This payment is assessed on the current-year tax return. If covered by an exemption, the taxpayer won’t have to make this payment.
Most exemptions require the taxpayer to file a form to apply for an exemption. Some hardship exemptions that can be claimed on the tax return without a ECN. See the IRS webpage Individual Shared Responsibility Provision – Exemptions: Claiming or Reporting for the full list of exemptions.
The general categories are:
- Income-related exemptions
- Health coverage-related exemptions
- Group membership exemptions. These exemptions concern membership in
- a federally-recognized tribe, or access to services of an Indian Health Services Provider
- a health care sharing ministry
- recognized religious sect with religious objections to insurance, including Social Security and Medicare
- Other exemptions. These include exemptions related to:
- foreign residence and citizenship (Exemption type C, claimed on tax return, not granted by marketplace)
- There are many types of hardship exemptions (including new 2018 exemptions as defined by the Department of Health and Human Services). Hardship exemptions are coded with Exemption type G on the 8965 screen in Drake Tax. Generally, a taxpayer will need to file an application for a hardship exemption to obtain a Marketplace Exemption Certificate Number (ECN); see below for details.
- Per healthcare.gov, starting with plan year 2018, you don’t have to fill out an application to get a hardship exemption. You can claim the exemption, without having to submit documentation about the hardship, on your 2018 federal tax return.
If an application is required and submitted, the Marketplace reviews it to determine the applicant's eligibility and then the following occurs:
- A notice of the exemption eligibility result will be mailed to the applicant. If an exemption is granted, the notice will show the taxpayer's unique Exemption Certificate Number (ECN)
- The ECN is used to complete current-year taxes to avoid paying the shared responsibility payment.
- The notice will also provide access to catastrophic plan information. The taxpayer can contact the issuer to enroll using the ECN. (Note: If the taxpayer is granted a hardship exemption, purchase of catastrophic coverage is not required.)
The response time after submission depends on how complicated the request is, how complete the application, and whether supporting documentation is needed. If additional information is requested, the application process may take longer. The taxpayer may want to submit any required documentation with the application.
See the HealthCare.gov website Fees & exemptions for information about hardship exemptions.
Hardship Exemptions Without Certificate
There are some hardship exemptions that can be claimed on the tax return without a ECN. See the IRS webpage Individual Shared Responsibility Provision – Exemptions: Claiming or Reporting for the full list of exemptions. That list shows the following exemptions as not requiring a marketplace exemption certificate:
- Coverage is considered unaffordable - The minimum amount you would have paid for employer-sponsored coverage or a bronze level health plan (depending on your circumstances) is more than a certain percentage of your actual household income for the year as computed on your tax return.
- Short coverage gap - You went without coverage for less than three consecutive months during the year. See IRS FAQ 19 for a definition.
- In Drake Tax, a short gap in coverage is calculated automatically from the 8965 entries, unless the gap includes January.
- If the gap includes January on screen 8965, more information is needed because IRS guidelines specify that any months for which coverage was not present in the prior year are also counted in the three months for a current year coverage exemption.
- Since the software does not know if the taxpayer had coverage in the prior year, it cannot determine if a gap that includes January qualifies for a short gap in coverage.
- If you determine that the taxpayer does qualify for a short gap in coverage exemption for a gap that includes January, select B from the Exemption Type drop list for the applicable months.
- See the Exemption Type field help (F1) for details.
- Income below the return filing threshold - Your gross income or your household income is less than your applicable minimum threshold for filing a tax return.
- Citizens living abroad and certain non-citizens
- Members of a health care sharing ministry - You are a member of a health care sharing ministry, which is an organization described in section 501(c)(3) whose members share a common set of ethical or religious beliefs and have shared medical expenses in accordance with those beliefs continuously since at least December 31, 1999.
- Members of Indian Tribes - You are a member of a Federally-recognized Indian tribe, including an Alaska Native Claims Settlement Act (ANCSA) Corporation Shareholder (regional or village), or you were otherwise eligible for services through an Indian health care provider or the Indian Health Service.
- Incarceration - You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges.
- Aggregate self-only coverage considered unaffordable - Two or more family members' aggregate cost of self-only employer-sponsored coverage is more than a certain percentage of your actual household income, as does the cost of any available employer-sponsored coverage for the entire family.
- Resident of a state that did not expand Medicaid - Your household income is below 138 percent of the federal poverty line for your family size and at any time during the year you reside in a state that does not participate in Medicaid expansion under the Affordable Care Act.
See HealthCare.gov for details.