If you did not have health insurance for more than 9 months during 2014, the IRS will fine for not fulfilling the Individual Mandate that Obamacare requires. For most uninsured people that penalty will be 1% of your total income in the 2014 tax year. In 2015, it goes up to 2%, and 3% in 2016. The median household income is $30,932, so the average penalty will be about $309, but some small business owners could be forced into +$1,000 fines. The fine doesn’t go toward buying you insurance either. The money collected from the fines can be used however the government chooses, and it is completed forfeited by the taxpayer.
A lot of people are already exempt, such as Amish, Native Americans, prison inmates, and illegal aliens, but even the government doesn’t like to kick people when they are down so the Individual Mandate also has the hardship exemption. The hardship exemption is list of 14 different scenarios that can get you out of paying the IRS fine for not having health insurance:
1. You were homeless
2. You were evicted in the past 6 months or were facing eviction or foreclosure
3. You received a shut-off notice from a utility company
4. You recently experienced domestic violence
5. You recently experienced the death of a close family member
6. You experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to your property
7. You filed for bankruptcy in the last 6 months
8. You had medical expenses you couldn’t pay in the last 24 months that resulted in substantial debt
9. You experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member
10. You expect to claim a child as a tax dependent who’s been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child. In this case, you don’t have the pay the penalty for the child.
11. As a result of an eligibility appeals decision, you’re eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on your monthly premiums, or cost-sharing reductions for a time period when you weren’t enrolled in a QHP through the Marketplace
12. You were determined ineligible for Medicaid because your state didn’t expand eligibility for Medicaid under the Affordable Care Act
13. Your individual insurance plan was cancelled and you believe other Marketplace plans are unaffordable
14. You experienced another hardship in obtaining health insurance
Some of them kind of make sense, such as the disaster (number 6), or being ordered to pay for a child’s care that you can’t afford (number 10). However some are just ridiculous, such as number 8, for large medical expenses. The idea of health insurance is that it will cover large medical expenses, so those people are the prime example of why health insurance is a good idea, not someone to exempt. Also, number 2, a shut off notice, doesn’t necessarily mean that you can’t afford to pay for utilities; it may just mean that you prefer NET 90 accounting terms.
All of these hardships exemptions require proof except for two of them: number 1, the homelessness provision, and number 4, the domestic violence provision. The homelessness may be hard to prove, but they could at least ask for an affidavit from a homeless shelter or the local police dept, or some other independent 3rd party as proof of homelessness.
The domestic violence could also be shown, by police reports, or an affidavit from a shelter, or a court order, etc, but as it stands now, no documentation is needed to claim either of these hardships. And while most people can agree on the definition of being homeless, the definition of domestic abuse is lot more broad. Here is the definition from the DOJ:
We define domestic violence as a pattern of abusive behavior in any relationship that is used by one partner to gain or maintain power and control over another intimate partner. Domestic violence can be physical, sexual, emotional, economic, or psychological actions or threats of actions that influence another person. This includes any behaviors that intimidate, manipulate, humiliate, isolate, frighten, terrorize, coerce, threaten, blame, hurt, injure, or wound someone.
Physical Abuse: Hitting, slapping, shoving, grabbing, pinching, biting, hair pulling, etc are types of physical abuse. This type of abuse also includes denying a partner medical care or forcing alcohol and/or drug use upon him or her.
Sexual Abuse: Coercing or attempting to coerce any sexual contact or behavior without consent. Sexual abuse includes, but is certainly not limited to, marital rape, attacks on sexual parts of the body, forcing sex after physical violence has occurred, or treating one in a sexually demeaning manner.
Emotional Abuse: Undermining an individual’s sense of self-worth and/or self-esteem is abusive. This may include, but is not limited to constant criticism, diminishing one’s abilities, name-calling, or damaging one’s relationship with his or her children.
Economic Abuse: Is defined as making or attempting to make an individual financially dependent by maintaining total control over financial resources, withholding one’s access to money, or forbidding one’s attendance at school or employment.
Psychological Abuse: Elements of psychological abuse include – but are not limited to – causing fear by intimidation; threatening physical harm to self, partner, children, or partner’s family or friends; destruction of pets and property; and forcing isolation from family, friends, or school and/or work.
Should Rihanna be exempt from Obamacare because Chris Brown hit her? What about Halle Barry, Madonna, Whitney Houston, Mariah Carey, and Tina Turner? Rihanna made $48 million in 2014, and a 1% penalty would have been $480,000. Would you take a black eye for half million dollars? We don’t exempt domestic abuse victims from sales tax, or property tax, or estate tax, or any other tax. Shouldn’t tax exemptions be based on ability to pay? Your domestic situation doesn’t necessarily reflect your income, though a bad home life may contribute to lower income. In fact it creates a perverse incentive to claim spousal abuse to save money. Did your spouse call you a bad name at some point in 2014? Congratulations, you’re a domestic abuse victim.
Now if your spouse is an angel, like mine, there are still some other methods to getting the exemption. The one most people will likely utilize is number 12, if they live in one of the following states:
AL, FL, GA, ID, KN, LA, ME, NE, NC, OK, SC, SD, TX, WI.
These states are not expanding Medicaid and so many people became ineligible.
How you get the exemption is as follows:
1. Gather your evidence, such as your denial letter from Medicaid, shut-off notice, etc.
2. Download the Hardship Exemption Form at https://marketplace.cms.gov/applications-and-forms/hardship-exemption.pdf
3. Fill out the form and mail it to:
Health Insurance Marketplace – Exemption Processing
465 Industrial Blvd.
London, KY 40741
4. Wait 1-2 weeks for a confirmation number called an ECN.
5. Put the ECN number in part I of IRS form 8965.
If your ECN doesn’t come back by APR 15, form 8965 can be filled in as “ECN PENDING”, but you will have to file an amended return.
Having health insurance may be a good idea, but the government forcing people to buy a certain product will only lead to more mandated purchases and less freedom for the American people. If you can’t afford the mandate, please consider applying for one of these exemptions.