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IRS Publication Outlines ACA Shared Responsibility Health Coverage Exemptions

IRS has recently released Publication 5172, Facts about Health Coverage Exemptions. It is a one-page outline of the exemptions from the individual shared responsibility provisions of the Affordable Care Act (ACA), also referred to as the individual mandate. Under the ACA provision, individuals and their family members are required to have qualified health insurance (i.e., minimum essential coverage), make a shared responsibility payment when filing their federal income tax return, or qualify for an exemption. ( IRS Publication 5172 )

Background.

Beginning in 2014, under Code Sec. 5000A, if a taxpayer or an individual for whom the taxpayer is liable isn’t covered under minimum essential coverage for one or more months, then, unless an exemption applies, the taxpayer is liable for the individual shared responsibility payment on his return. Married individuals who file a joint return for a tax year are jointly liable. The amount of a taxpayer’s shared responsibility payment is based, in part, on the number of individuals a taxpayer is responsible for who do not have minimum essential coverage. (Code Sec. 5000A(c)(3)(B), Reg. § 1.5000A-4)

For each tax year, the individual shared responsibility payment is the lesser of: (1) the sum of the monthly penalty amounts; or (2) the sum of the monthly national average bronze plan premiums for the “shared responsibility family.” (Reg. § 1.5000A-4(a)) Shared responsibility family means, for a month in a tax year, all nonexempt individuals for whom the taxpayer and the taxpayer’s spouse (if the taxpayer is married and files a joint return with the spouse) are liable for the shared responsibility payment under Code Sec. 5000A for that tax year. (Reg. § 1.5000A-1(d)(17)) The monthly national average bronze plan premium means, for a month for which a shared responsibility payment is imposed, 1/12 of the annual national average premium (for 2014, $204 per individual, except $1,020 for a shared responsibility family with five or more members) for qualified health plans that (a) have a bronze level of coverage, (b) would provide coverage for the taxpayer’s shared responsibility family members, and (c) are offered through Exchanges for plan years beginning in a calendar year with or within which the tax year ends. (Code Sec. 5000A(c)(1)(B), Reg. § 1.5000A-4(c))

IRS guidance.

Pub 5172 explains that individuals may obtain an exemption from either the Marketplace (also known as the Affordable Insurance Exchange) or IRS, depending on the type. All exemptions are reported on the tax return, although individuals are automatically exempt if they don’t have to file a return because their income is below their filing threshold. Pub 5172 provides the types of exemptions available along with information about how to obtain them. While Pub 5172 alerts individuals to the available exemptions, it doesn’t provide much in the way of explanation. However, the web version of the Pub does provide links with a more thorough discussion.

The exempt categories are:

1. Members of certain religious sects. An individual qualifies if he is a member of a religious sect in existence since December 31, 1950, that is recognized by the Social Security Administration (SSA) as conscientiously opposed to accepting any insurance benefits, including Medicare and Social Security. (Available through the Marketplace.)
2. Short coverage gap. An individual qualifies if he went without coverage for less than three consecutive months during the year. (Available through IRS.)
3. Certain noncitizens. An individual qualifies if he is neither a U.S. citizen, a U.S. national, nor an alien lawfully present in the U.S. (Available through IRS.)
4. Coverage is considered unaffordable. Individuals qualify if the amount they would have paid for employer-sponsored coverage or a bronze level health plan (depending on their circumstances) is more than 8% of their actual household income for the year as computed on their tax return. (See the second item under “Hardships,” below, which provides an exemption granted by the Marketplace if the amount an individual would have paid for coverage is more than 8% of their projected household income for the year.) (Available through IRS.)
5. Household income below the return filing threshold. Individuals qualify if their household income is below the minimum threshold for filing a tax return. A taxpayer must file a return for 2014 if gross income exceeds $10,150 for single taxpayers under age 65 and $11,700 for 65-or-older Single filers; $13,050 under age 65 and $14,600 if 65 or older for Head of Household filers; $20,300 under age 65 (both spouses), $21,500 age 65 or older (one spouse), and $22,700 if 65 or older (both spouses) for Married Filing Jointly; $3,950 any age for Married Filing Separately; and $16,350 under age 65 and $17,550 age 65 or older for Qualifying Widow(er) with Dependent Children.
6. Members of federally-recognized Indian Tribes. An individual qualifies if he is a member of a federally-recognized Indian tribe. (Available through the Marketplace or IRS.)
7. Members of health care sharing ministries. An individual qualifies if he is a member of a health care sharing ministry, which is an organization described in Code Sec. 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. (Available through the Marketplace or IRS.)
8. Incarceration. An individual qualifies if he is in a jail, prison, or similar penal institution or correctional facility after the disposition of charges. (Available through the Marketplace or IRS.)
9. Hardships. Individuals qualify under the following circumstances. (Available through the Marketplace or IRS.)
•Their gross income is below the filing threshold.
Two or more family members’ aggregate cost of self-only employer-sponsored coverage exceeds 8% of household income, as does the cost of any available employer-sponsored coverage for the entire family.
•They purchased insurance through the Marketplace during the initial enrollment period but have a coverage gap at the beginning of 2014.
•They are experiencing circumstances that prevent them from obtaining coverage under a qualified health plan—i.e., they have experienced financial or domestic circumstances (including an unexpected natural or human-caused event), such that they had a significant, unexpected increase in essential expenses that prevented them from obtaining coverage under a qualified health plan; the expense of purchasing a qualified health plan would have caused them to experience serious deprivation of food, shelter, clothing, or other necessities; or they have experienced other circumstances that prevented them from obtaining coverage under a qualified health plan. (Department Of Health & Human Services, Centers for Medicare & Medicaid Services) If they prevent an individual from obtaining coverage under a qualified health plan, Marketplaces may consider the following in determining a hardship, for an individual who:
… becomes homeless;
… has been evicted in the past six months, or is facing eviction or foreclosure;
… has received a shut-off notice from a utility company;
… recently experienced domestic violence;
… recently experienced the death of a close family member;
… recently experienced a fire, flood, or other natural or human-caused disaster that resulted in substantial damage to the individual’s property;
… filed for bankruptcy in the last six months;
… incurred unreimbursed medical expenses in the last 24 months that resulted in substantial debt;
… experienced unexpected increases in essential expenses due to caring for an ill, disabled, or aging family member;
… is a child who has been determined ineligible for Medicaid and CHIP, and for whom a party other than the party who expects to claim him or her as a tax dependent is required by court order to provide medical support. (This exemption should only be provided for the months during which the medical support order is in effect); or
… as a result of an eligibility appeals decision, is determined eligible for enrollment in a qualified health plan through the Marketplace, advance payments of the premium tax credit, or cost-sharing reductions for a period of time during which he or she was not enrolled in a qualified health plan through the Marketplace. (This exemption should only be provided for the period of time affected by the appeals decision.)
•They do not have access to affordable coverage based on their projected household income.
•They are ineligible for Medicaid solely because the State doesn’t participate in the Medicaid expansion under the Affordable Care Act.
•They are an American Indian, Alaska Native, or a spouse or descendant who is eligible for services through an Indian health care provider.
•They have been notified that their health insurance policy will not be renewed and they consider the other plans available unaffordable.
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