Who Gets the Tax Penalty for Health Insurance?


When the Affordable Care Act took effect, it started a clock ticking for taxpayers who don’t carry health insurance. Beginning with your 2014 tax return, if you don’t have what the ACA calls “minimum essential coverage,” the Internal Revenue Service will assess a penalty against you at tax time. Basically, if you can get coverage and you elect not to do so, you’ll be hit with the tax penalty. The silver lining is that a number of circumstances can exempt you from having to make the payment if you qualify.

Policy-Related Exemptions

  • Some exemptions relate to the coverage that’s available to you. Technically, you’re supposed to have a policy in effect throughout the entire year, but if you only miss three months or less, an exemption exists to cover this. If the cheapest policy available to you costs more than 8 percent of your household income, you don’t have to pay the penalty. “Household” is the key word, however. If you earn $40,000 a year and your spouse earns $25,000 a year, you must calculate 8 percent of $65,000. If your income is such that you would normally have qualified for expanded Medicaid coverage, regardless of your age, but your state doesn’t give you this option, you don’t have to pay the tax penalty.

Low Income Exemption

  • Some exemptions apply to low income taxpayers. Unemployment won’t qualify you for an exemption by itself, but if you don’t earn enough during the year that you’re required to file a tax return, you’re exempt from paying the penalty. As of 2014, you don’t have to file a return if you earn less than $10,150 if you’re a single taxpayer under age 65. But this number can vary by year and according to your filing status.

Hardship Exemptions

  • A number of circumstances fall into the category of hardship exemptions. They include homelessness, foreclosure or eviction -- or even just having your utilities turned off for non-payment during the year. If you filed for bankruptcy in the past six months, you can qualify for a hardship exemption. If you ran up extensive medical bills because you didn’t have insurance and can’t pay them, you’re exempt. Family issues also qualify. If you’re a victim of domestic violence, if a close family member has died or if you had to put your life aside to care for a seriously ill family member, these circumstances all qualify you for a hardship exemption. If your property was severely damaged due to flood, fire or some other disaster, you don’t have to pay the penalty. Most hardship exemptions require that you provide the government with proof of your claim.

Other Exemptions

  • Other exemptions include religious or tribal affiliations. If you’re a member of a religious sect whose teachings prohibit insurance, you can qualify for an exemption. If you’re a member of a nationally recognized Indian tribe, you would have coverage available through Indian Health Services so you’re exempt. If you’re a member of a healthcare sharing ministry, you don’t have to pay the IRS fine. Inmates are exempt, as are illegal immigrants.

Exemption Applications

  • The ACA’s exemptions aren’t all created equal. You can claim some on your tax return when you file, but others will take a bit more work -- you must apply for the exemption through your state’s Marketplace, the website where you can sign up for minimum essential coverage under the ACA if you don’t otherwise have a policy. If you qualify for a policy-related exemption or if you don’t earn enough to file a tax return, you can claim these exemptions on your tax return -- you’d have to file a return even if your income doesn’t require it. Most hardship exemptions can only be granted through the Marketplace, as well as the exemption relating to religious beliefs. If you’re exempt because you’re a member of a federally recognized tribe or a healthcare ministry, you have a choice -- you can either claim the exemption on your return or do it through the Marketplace. The list of exemptions is long and complicated, so you might want to consult with legal aid or an accountant before you file your tax return.


  • Photo Credit Design Pics/Design Pics/Getty Images
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