Affordable Care Act

Part 2: Exemptions for the Penalties


The Patient Protection and Affordable Care Act is, by far, one of the most complex reforms to our healthcare system. Whether you are for or against it, it comes with rules you should understand in order to avoid having to pay an additional tax called the “individual shared responsibility payment.”

(See last month’s blog that discusses the most commonly asked question: “How do I calculate the individual shared responsibility payment?”)

The second most common question I receive from taxpayers is “What are the exemptions for the penalties?”

There are two types of exemptions you should know about: Regular exemptions and hardship exemptions. (See a more detailed list of exemptions in this article from

What qualifies as a regular exemption?
One of the most common reasons taxpayers claim a “regular” exemption is if they cannot afford health insurance coverage. Taxpayers can be exempt from the penalty if the amount they are required to pay exceeds 8.05 percent of their household income (including earnings from taxpayer, spouse and any children living in the home).

A regular exemption may be granted for:

  • Individuals with income below the filing threshold (If you don’t have to file, you don’t have to pay a penalty for not having health insurance.)
  • Individuals who are incarcerated
  • Members of certain religious sects
  • Citizens living abroad and certain-non citizens
  • Taxpayers with only a short coverage gap, meaning there was a period of less than 3 months without minimum essential coverage

What qualifies as a hardship exemption?
A hardship exemption is allowed when a life situation keeps you from being able to obtain life insurance. identifies 14 examples of hardships that would qualify for the exemption.

A hardship exemption may be granted for individuals dealing with such things as:

What do I do if I’m eligible for an exemption?
If you’re eligible for an exemption, and you’re required to file a tax return, your exemption should be claimed on your tax return using form 8965 with the corresponding exemption code.

Please Note: Some exceptions require you to first get your exemption granted by the marketplace. Visit to find out which exemptions require prior approval. You’ll need to provide an exemption certificate number on form 8965 if you’re granted coverage exemption from the marketplace.

Be sure to check back for next month’s blog, covering part three of this four-part series on the Affordable Care Act.

If you have other questions, feel free to contact me directly by email at

Contributed by: Tina L. Moe, CPA, CGMA, President & CEO

See the rest of the series!