The implementation of President Barack Obama’s Affordable Care Act comes packed with nearly two dozen changes to the tax code. These changes run the gamut from a medical device tax, excise taxes on high-end healthcare plans, and even a tax on indoor tanning services.
For the majority of Americans, the most significant change will be compliance with the individual mandate, which is the shared responsibility requirement that everyone have health insurance. Starting this year, those without qualifying health insurance will face a penalty — or, tax — of $95 per adult and $47.50 per child, up to $285 per family, or 1 percent of taxable income, whichever is greater.
Moreover, the severity of the tax penalty increases over time. Come 2015, the penalty per adult will increase from $95 to $325, or 2 percent of income, whichever is greater, and in 2016 it increases to $695 and 2.5 percent on income. From there, the penalty will be indexed to inflation. However, the tax caps out at whatever the average yearly premium is on a bronze-level plan.
Before the Affordable Care Act began its rollout, about 15 percent of Americans were uninsured. If the political vitriol is any indicator of how people actually behave when push comes to shove, there will still be some fraction of Americans who remain uninsured after the March 31 signup deadline. These people will be hit with the first individual mandate compliance taxes this tax season.
There are several exemptions to the tax for the uninsured, but the hardship exemptions are all worse than the financial penalty. Here’s a look.
1. You were homeless
There aren’t may tax breaks specifically designed for the homeless, but there’s a specific hardship exemption under the Affordable Care Act for homelessness. For the record, the government doesn’t require any additional documentation to demonstrate homelessness outside of the standard exemption paperwork.
2. You were evicted in the past 6 months or were facing eviction or foreclosure
Five years after the housing bust and the financial crisis crescendoed, foreclosures are still a huge problem in the U.S. According to RealtyTrac, a total of 152,033 properties in the foreclosure process were vacated by distressed owners in the first quarter of 2014.
3. You received a shut-off notice from a utility company
There are few things more important than access to healthcare, and access to utilities is one of them. If you had to choose, it appears as if the government would rather you keep the lights on than sign up for the ACA.
4. You recently experienced domestic violence
Due to its sensitive nature, this is another exemption that requires no additional documentation. Victims of domestic violence without qualifying insurance can claim hardship in order to avoid the tax.
5. You recently experienced the death of a close family member
The government will want some sort of documentation to prove your claim, but the death of a close family member is a qualifying hardship for ACA tax exemption.
6. You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property
There are a number of tax breaks associated with substantial property damage — not that any are worth it, but it’s nice to know that at least the ACA won’t adding to your worries if you don’t have insurance and suffer severe property damage. Certain types of property damage or loss qualify for other deductions, as well.
7. You filed for bankruptcy in the last 6 months
Believe it or not, “I can’t afford it” is sometimes a legitimate excuse, even when dealing with the IRS. Odds are if you can’t pay your debts, you can’t pay your insurance bill. If you find yourself between a rock and a hard place, Uncle Sam will cut you a little slack.
8) You had medical expenses you couldn’t pay in the last 24 months
This smells like something out of Catch 22 – you can gain a hardship exemption from the tax penalty for not having healthcare if you have medical expenses you couldn’t pay in the last two years, a situation that more often occurs to those without insurance. This is not to say that those with insurance don’t sometimes suffer from outsized medical expenses, but softening the blow of a medical emergency is one of the primary purposes of insurance.
9. You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member
There are a couple of tax provisions that already exist to help those who are supporting ill, disabled, or aging family members. For example, under certain circumstances a child can claim their parent as a dependent, which will reduce taxable income. If you’re able to claim your parent as a depended but their income exceeds the limit to qualify for the standard dependent deduction, then you may be able to deduct certain medical expenses.
10. You experienced another hardship in obtaining health insurance
This exemption seems purposefully broad and acts as a kind of bucket into which more uncommon or extraordinary exemptions fall. The only guidance provided for this is “Please submit documentation if possible.”