More ACA forms? Yes, indeed! As I noted in my email earlier this morning, HHS recently updated its guidance about hardship exemptions for the ACA tax penalties for those lacking health coverage. But HHS has also now posted a summary of the revised exemption standards and the final versions of the seven different exemption application forms at https://www.healthcare.gov/exemptions/.
Must all exempt individuals complete one of the new forms to escape the tax penalty?
No. Individuals eligible for certain penalty exemptions can apply on their federal income tax returns.* However, persons eligible for many other exemption categories must complete the new hardship exemption forms and mail these to HHS’s processing center in London, Kentucky (which also processes application for health coverage for the federal exchange). The HHS posting at the URL above does an okay job of summarizing this – but Jackson Hewitt will also work to explain this more clearly to our tax customers.
How does this affect adults under 138% FPL living in states that have not expanded Medicaid?
Well, they need to get ready for a paperwork party! Under the penalty exemption rules and related hardship guidance,** HHS is granting hardship exemptions to U.S. citizens who are ineligible for Medicaid and are under 138% FPL only if they (1) go ahead and apply for Medicaid, (2) receive their denial notice, and then (3) complete and submit the application for the hardship exemption along with their denial notice. Consequently, low-income U.S. citizens in non-expansion states typically must complete the largely redundant hardship form, enclose their denial notice, and mail it to the same processing entity to which they sent their initial application for ACA assistance.*** Too bad that individuals with such hardships can’t deduct all this postage from their taxes!
So, is this a good or bad policy?
We shy away from making value judgments on such matters. Even so, it remains unclear to us why the processing center that issues an eligibility assessment or denial to the applicant cannot automatically process the hardship exemption on behalf of that taxpayer. While this remains a head-scratcher, we just report tax facts and explain the process; we’ll leave the moral and political judgments to you.
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* The IRS notes in its FAQS on the tax penalty provision that, “The exemptions for unaffordable coverage, short coverage gaps, certain hardships and individuals who are not lawfully present in the United States can be claimed only as part of filing a federal income tax return. The exemption for those under the federal income tax return filing threshold is available automatically. No special action is needed.” See http://www.irs.gov/uac/Questions-and-Answers-on-the-Individual-Shared-Responsibility-Provision. Please note, though, some of these individuals may not be certain whether they qualify for these exemptions until they file their tax returns when they compute their modified adjusted gross income (MAGI); further, note that definition of MAGI for penalty purposes differs from the definition of MAGI for tax credit purposes.
42160 (July 15, 2013); State Health Official Letter from Gary Cohen, CCCIIO, “Guidance on Hardship Exemption Criteria and Special Enrollment Periods,” June 26, 2013; CCIIO, “Options Available for Consumers with Cancelled Policies,” December 19, 2013.
*** The new hardship exemption application form is now available at
; the similar “Application for Health Coverage & Help Paying Costs” is available at http://marketplace.cms.gov/getofficialresources/publications-and-articles/marketplace-application-for-family.pdf.
Senior Vice President for Health Policy
Jackson Hewitt Tax Service Inc.
Cell: (615) 761-6929