You might have heard that the Republicans’ Tax Cuts and Jobs Act has repealed the individual mandate created by Obamacare. Unfortunately, the mandate is still in effect for the 2017 tax year, so filers who did not buy insurance are still subject to the penalties. This “shared responsibility” payment will be 2.5% of your household income or $695 per adult (and $347.50 per child)—whichever is greater, up to $2,085. However, there are several ways to avoid paying the penalty.
Claim a Partial Exemption
Some people might have health insurance for a portion of the year. If you had insurance for nine or more months, then you won’t need to pay anything for a penalty.
However, if you were uninsured for more than three months, you’ll need to pay 1/12 of the penalty amount for each month that you were uninsured. For example, if you were uninsured for six months, you’ll end up paying half of the amount.
Request a Hardship Exemption
Certain hardships make it difficult to free up money for health insurance. You can claim a hardship exemption for:
- Death of a close relative
- Unexpected expenses incurred for taking care of a family member
- Medical expenses that are unaffordable
- Fire or natural disaster
You will need to submit supporting documentation to back up your claim. For example, you can submit medical bills to back up your claim of unaffordable expenses or taking care of a family member. If you filed for bankruptcy, keep copies of your bankruptcy records.
You will need to submit your request and documentation to your state marketplace. If approved, you will receive an exemption certificate number which you will put on your tax return.
Request an Affordability Exemption
It might be the case that you haven’t suffered a hardship, yet health insurance plans are simply too expensive in your area. If so, you might be able to get an exemption. To qualify, the cheapest plan available must be more than 8.16% of your modified adjusted gross income (MAGI). Your MAGI will include your wages, alimony, retirement benefits, investment properties, and some Social Security income, less certain deductions, such as alimony paid or student loan interest.
For example, if your annual income is $40,000, then you can claim this exemption if the cheapest plan available is more than $3264 a year. You can apply for this exemption through your state’s marketplace, so contact them for a form.
Taxpayers will be exempted from the shared responsibility penalty if any of the following apply:
- You are in jail
- You have lived outside the U.S.
- You are member of a tribe recognized by the federal government
- Someone in your household died, which exempts you for the month they died and the following month
Contact an Atlanta IRS Tax Lawyer with Questions
The Obamacare penalty is confusing, and families might be able to avoid it depending on their circumstances. The exemptions listed in this article are not exhaustive, so others might apply. Call Jeff Cohen, Attorney at Law, if you have questions about IRS tax law, at 404-814-0000 or fill out the firm’s contact form.