The IRS will take on a new role in 2015 when Americans begin sending in their 2014 federal tax returns. That new role will consist of enforcing tax penalties for individuals who fail to have insurance coverage this year. Individuals are looking at a penalty of 1% of their household income or $95, whichever is higher. Families get hit a little harder – $95 for each adult and $47.50 for a child. The penalty is capped for 2014 at $285 per family, or 1% of income. These penalties will significantly increase over the next few years.
Before you give up and prepare to suffer the penalty, we have some options that might help you qualify for an exemption from the penalty. Of course there are the standard exemptions that apply to those who aren’t U.S. citizens, incarcerated individuals, and those who belong to a federally recognized tribe. But if you don’t fall into one of these categories, you might fall into the hardship exemption category, which we expect millions of Americans to fall under.
You qualify for a hardship exemption if:
- You’ve been evicted in the past six months/foreclosure
- You’re a victim of domestic violence
- A close family member has passed away
- You’re homeless
- You’ve received a shut-off notice from one of your utility companies
- You’re ineligible for Medicaid because your state didn’t expand its Medicaid program
- You’re health care policy was cancelled and you can’t find an affordable replacement
- You’ve experienced a fire, flood, or other disaster
- You filed for bankruptcy in the past six months
- You have medical expenses you haven’t been able to pay in the past 24 months
- Results of an appeal qualify for an exemption
- Another person is required to provide health coverage for one of your dependents
- You’ve had an unexpected increase in expenses caring for an ill or aging family member
- You have experienced some other sort of hardship applying for coverage
As you can see, this covers a wide spectrum of events, and all you have to do is complete and send in the hardship exemption form. You’ll see on the form that you’ll be required to submit proof of your particular hardship.
How Tax Penalties are Collected
Although the IRS won’t come knocking on your door to collect the tax penalty, if you’re due a refund in the future, it will be reduced by the tax penalty due. Although this may not seem like much now, in 2016, families could owe as much as $2,085 and individuals could owe as much as $695!
It’s possible that new exemptions could come about in the next few months, and we’ll do our best to keep you updated as more information comes in. If you have any questions about exemptions, contact one of our advisors for assistance at 866-749-2039.
Wiley Long is President of HSA for America, and a passionate advocate for consumer-based solutions that will improve price transparency and lower health insurance and medical costs for people purchasing individual and family health insurance plans.