No Health Coverage? You May Face A Tax Penalty

The terms of the Affordable Care Act (ACA) dictate that if a person did not obtain health coverage for himself, his spouse and dependent children, penalties will be inflicted at a rate of at least $95 per person beginning in 2014. I say “at least” because there is a formula based upon income and family size that determines the amount each person will be required to pay. This penalty will be calculated then reported on your income tax return on Line 61 of IRS Form 1040. If you have health care coverage for yourself, your spouse and your dependent children simply check the box on Line 61 indicating full-year coverage and leave the remainder blank.

If you did not have coverage it’s possible to escape the penalty by qualifying for one of 19 exemptions, most of which can be claimed by filing IRS Form 8965.

Because there were so many problems with the ACA website at the beginning of 2014, taxpayers have automatic relief from the coverage requirement for the first four months of the year. Simply check off the boxes from May forward on Form 8965. No penalty will be exacted.

One of the most obvious exemptions is the ability to pay. In fact, if your income is so low that you are not required to file an income tax return, then you are automatically exempt. No action is required on your part.

Ability to pay is also defined as coverage costs exceeding 8% of your household income. Defining household income can be tricky so please refer to page 3 of the Instructions for Form 8965. It’s a matter of adding together certain line items from your income tax return to determine whether or not you qualify for this particular exemption.

Going without coverage for less than three consecutive months during 2014 also exempts a taxpayer from penalty. Simply check off the months on Form 8965 that you had coverage and submit it without penalty with your tax return.

The other exemptions include being a member of an Indian tribe, incarceration, having lived outside of the country for most of the year, among others. You must thoroughly read the guidelines for the qualifiers to determine if you are eligible for the exemption.

Some exemptions must be qualified at the exchange level and require a certificate number from the exchange to list on the tax return. These exemptions include:

  1. Member of certain religious sects
  2. Being ineligible for Medicaid
  3. Unable to renew existing coverage
  4. AmeriCorps coverage
  5. Coverage unaffordable based on projected income
  6. General Hardship, which is determined by the exchange