Qualify for a Penalty Exemption for the Uninsured

There's a long list of exemptions from the individual mandate penalty

If you were uninsured, you may qualify for an exemption from the ACA's individual mandate penalty
If you didn't have health insurance last year, you may end up with a penalty when you file your taxes. But there are numerous exemptions available. Tsuji/Creative RF/Getty Images

Tax season is well underway, and this marks the second year that tax returns have included questions about whether or not you and your dependents had health insurance coverage during the prior year. If you didn't, you may have to pay a penalty, which the IRS will subtract from your refund.

For 2016, the penalty is expected to be almost $1,000 for the average tax filer subject to the penalty. But keep in mind that the 2016 penalty won't be assessed until taxes are filed in early 2017.

For the current tax season, the penalty is from 2015, and it wasn't as high last year. If you were uninsured in 2015, the penalty is the GREATER of:

  • $325 per uninsured adult, and $162.50 per uninsured child, up to a family maximum of $975, OR
  • 2% of household income above the tax filing threshold. For 2015, the tax-filing threshold is $10,300 if you're single, and $20,600 if you're married filing jointly (other thresholds can be found in IRS Publication 501).

That's the total amount of the penalty if you were uninsured the full year. If you were insured for part of the year, the penalty amount is prorated (divide the total by 12, then multiply that amount by the number of months you were uninsured to get your penalty amount).

Lots of exemptions available

2014 was the first year that Americans were required to maintain health insurance coverage or pay a penalty. But the IRS reported last summer that while 7.5 million taxpayers had to pay a penalty for being uninsured in 2014, another 12 million taxpayers were able to claim an exemption from the penalty, despite being uninsured in 2014.

Most of those exemptions are still available if you were uninsured in 2015. If you're facing a penalty for being uninsured last year, you may be eligible for one of these exemptions (note that some exemptions must be obtained through the exchange, while others must be claimed on your tax return):

Coverage was unaffordable.

This exemption applies if the cheapest bronze plan available to you - or the employer-sponsored plan available to you - would have cost more than 8.05% of your household income in 2015 (this percentage increases slightly each year; for 2016, it's 8.13%). For people caught by the family glitch, this exemption is often available. But if you're eligible for premium subsidies in the exchange, only the portion you would have had to pay - after the subsidy - is taken into consideration for this calculation.

Your gap in coverage was less than three months. Note that this exemption only applies to the first short gap in coverage during the year, and it has to be less than three months; if you're uninsured for three months, you'll owe a penalty for all three months. 

Your income was low enough that you don't have to file a tax return. If your income was below the tax filing threshold, you're automatically exempt from the penalty. If you're in a state that has expanded Medicaid, you're probably eligible for Medicaid if your income is below the filing threshold. Check with the exchange or your state Medicaid office to see if you can enroll now. 

You lived abroad, lived in a US territory, or weren't legally present in the US.

Americans who live abroad for at least 330 days in a 12 months period are exempt from the penalty, as are citizens living in the US territories (Guam, Puerto Rico, US Virgin Islands, American Samoa, and the Northern Mariana Islands).

You're a member of a healthcare sharing ministry (HCSM), or a member of a religious sect that is opposed to health insurance. The HCSM must have been in effect since at least December 31, 1999 (you may have joined the HCSM later than that date, but the HCSM itself has to have been in existence and continually sharing medical expenses since at least that date). And if you're part of a religious sect that's opposed to insurance, it must have been in existence since December 31, 1950, and must be recognized by the Social Security Administration as being opposed to all insurance benefits, including Medicare and Social Security.

In practice, this is essentially limited to the Amish and Old Order Mennonites.

You're a member of a federally-recognized Indian tribe. Although Native Americans and Alaska Natives are exempt from the ACA's penalty for being uninsured, they're also eligible to enroll in a health plan through the exchange year-round, and have access to higher-quality health plans, including plans with no cost-sharing for households with income up to three times the poverty level. If you're an uninsured Alaska Native or Native American, be sure to consider your options in the exchange before deciding to remain uninsured.

You experienced one of a wide range of general hardships during the year. These include things like the death of a family member, filing for bankruptcy, being the victim of domestic violence, or being ineligible for Medicaid because your state has refused to expand Medicaid (in addition to being included as general hardship, this is also its own specific exemption - if you would have qualified for Medicaid but didn't because your state hasn't expanded coverage, you'll qualify for a penalty exemption). There's a long list of things that count as hardships, so check to see if any of them apply in your situation.

Your old health plan was canceled because it didn't comply with the ACA, and you didn't consider the new options affordable. This exemption can only be obtained through October 1, 2016, but anyone who gets the exemption by that date will be considered exempt for all of 2016. The exemption was also available in 2014 and 2015. After October 1, 2016, the exemption will no longer be available, and it will be necessary for these individuals to either enroll in a new plan, qualify for one of the other exemptions, or begin paying a penalty for being uninsured.

You were serving in AmeriCorps, VISTA, or NCCC and had coverage (short-term or self-funded) provided by the organization during your service.

There's no doubt that it's better to be insured than uninsured. But for a variety of reasons, that's not always possible. The ACA's individual mandate was designed to make sure that everyone who's able to get coverage does so, but it wasn't intended to penalize people who have a legitimate reason for being uninsured.

The exemptions are there to protect people from having to pay a penalty in a variety of situations. Seek help from the exchange in your state if you're unsure of the next steps to take - depending on the exemption, the exchange may be able to grant it for you, or they may direct you to request the exemption when you file your tax return.


Internal Revenue Service, Individual Shared Responsibility Provision - Exemptions: Claiming or Reporting. Accessed 5/31/16.

Internal Revenue Service, Publication 501, Exemptions, Standard Deduction, and Filing Information for use in preparing 2015 returns, December 29, 2015. Accessed 5/31/16.

Continue Reading