ACA Individual Mandate Penalty: Understanding Affordability Exemption

The Affordable Care Act (ACA), commonly known as Obamacare, requires most Americans to have health insurance or face a penalty on their tax return. However, there are certain exemptions that can allow individuals to avoid this penalty, including the affordability exemption.

What is the Affordability Exemption?

The affordability exemption applies to individuals who cannot afford to purchase health insurance through the Marketplace or other means. To qualify for this exemption, your household income must be below a certain threshold, which varies depending on the year and family size.

How to Determine If You Qualify

For 2023, the income limit for the affordability exemption is as follows:

Individuals: $16,000
Families of 2: $21,500
Families of 3: $25,500
Families of 4: $30,000
Families of 5: $34,500
Families of 6: $38,000

Income Calculation

Your household income is calculated based on your modified adjusted gross income (MAGI) from the previous year. This includes income from all sources, such as wages, salaries, tips, self-employment income, and investment earnings.

Example:

Let’s say you earned $28,000 in 2023. However, for the first few months of the year, you were uninsured and had no income. Your income for those months is considered $0.

Since your MAGI for the entire year is below the affordability threshold for a family of 1 ($16,000), you would qualify for the affordability exemption and would not have to pay the ACA penalty.

Other Exemptions

In addition to the affordability exemption, there are several other exemptions that can apply, including:

Religious objections: Individuals with a genuine religious objection to health insurance can obtain an exemption.
Financial hardship: Individuals who experience a financial hardship that makes it difficult for them to afford health insurance can apply for a hardship exemption.
Hardship exemption: Individuals who have a special circumstance or hardship that makes it difficult for them to get or keep health insurance can apply for a hardship exemption.
Other exemptions: There are a number of other exemptions, such as being incarcerated, homeless, or a non-resident alien.

How to Apply for an Exemption

To apply for an exemption, you will need to complete Form 8965, Health Insurance Exemption Application, and submit it to the IRS. You can find more information and download the form at: https://www.irs.gov/forms-pubs/about-form-8965