8848 / How does a taxpayer who may be exempt from the Affordable Care Act requirements obtain the exemption?

Editor’s Note: The 2017 tax reform legislation repealed the Affordable Care Act individual mandate that required individuals to purchase health insurance or pay a penalty for tax years beginning after December 31, 2018. The employer mandate and reporting requirements were not repealed.

An individual who may have been exempt from the ACA individual penalty provisions could often obtain a certificate of exemption from the health insurance exchanges. With respect to the religious and hardship exemptions, this was the only method of claiming the exemption. Individuals claiming the exemption based upon membership in an Indian tribe or incarceration could either obtain a certificate of exemption from the exchanges or claim the exemption on the federal tax return when the return was filed in the subsequent tax year. Exemptions for lack of affordable coverage, a short coverage gap, and certain hardships were required to be claimed on the taxpayer’s federal income tax return.

Individuals who were exempt from the shared responsibility provision because their income for the year fell below the filing threshold, so that they were not required to file a federal tax return for the year, did not need to take any action in order to obtain the exemption.¹

The IRS has also provided a list of the hardship exemptions that a taxpayer was entitled to claim without first obtaining a hardship exemption certification from the health insurance exchanges.² The hardship exemptions outlined in this notice were available if two or more members of a family had a combined cost of employer-provided health coverage that was deemed unaffordable, a taxpayer’s gross income was below the applicable threshold for filing a tax return, or a taxpayer applied for minimum essential health coverage during the periods described in the notice, or applied for coverage and could not complete the process.

Further, the taxpayer was not required to obtain prior certification if (1) the taxpayer applied for coverage under the Children’s Health Insurance Program and was found eligible, but had a gap in coverage before the program’s effective date, (2) the taxpayer was eligible for services through an Indian healthcare provider or (3) the taxpayer resided in a state that did not expand Medicaid coverage and that taxpayer’s household income was below 138 percent of the applicable poverty line. Taxpayers seeking to claim a hardship exemption that was not outlined by the IRS in Notice 2014-76 were still permitted to apply for an exemption through the health insurance marketplace.

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Planning Point: The IRS announced that all taxpayers who qualify for a hardship exemption under 45 CFR 155.605(d)(1) may claim the exemption without first obtaining a hardship exemption certification from the health insurance marketplace. These hardship exemptions include (1) financial or domestic circumstances, including unexpected natural or human-caused events, that cause an unexpected and significant increase in essential expenses that prevented the individual from obtaining qualifying health insurance, (2) situations where the cost of qualifying health insurance would cause the individual to experience a serious deprivation of food, shelter, clothing or other necessities, and (3) other circumstances that prevent an individual from obtaining coverage under a qualified health plan. This expansion is designed to provide added flexibility from the individual health insurance mandate for the 2018 tax year.³

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