Hardship Exemption
A hardship exemption was a provision of the Affordable Care Act (ACA) that allowed people who could not afford health insurance because of serious personal or financial circumstances to avoid the individual mandate penalty (the Shared Responsibility Payment). Exemptions were granted through the Health Insurance Marketplace and applied to the period when the hardship occurred.
Key points
- Hardship exemptions excused taxpayers from paying the ACA individual mandate penalty for the months covered by the exemption.
- Exemptions were available for certain qualifying life events or financial hardships.
- The federal individual mandate penalty was eliminated beginning in 2019, so federal hardship exemptions no longer result in a waiver of a federal penalty after that year.
- Proposals have been made to restore a federal individual mandate, which would revive the relevance of hardship exemptions if enacted.
Common qualifying circumstances (tax years up to 2018)
Hardship exemptions could be issued for situations such as:
* Homelessness.
Eviction or foreclosure within the prior six months.
Utility shut-off notices.
Victims of domestic violence.
Death of a close family member within the previous three years.
Fire, flood, or other disaster causing substantial property damage.
Bankruptcy within the previous six months.
Unpaid medical expenses in the prior 24 months.
Unexpected increases in necessary expenses for caring for an ill, disabled, or aging family member.
Expecting to claim a child on your tax return who was denied Medicaid/CHIP coverage while another person was legally obligated to provide support for that child.
Becoming newly eligible for a Marketplace qualified health plan or cost reductions as a result of an eligibility appeals decision for a period when you were not enrolled.
* Being ineligible for Medicaid because your state did not expand Medicaid under the ACA.
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Expanded hardship conditions (through 2018)
Regulatory changes expanded qualifying situations to include:
* Living in an area with no Marketplace plans or only one company selling plans.
Inability to find an affordable plan that excluded abortion coverage.
Personal circumstances that prevented purchasing a Marketplace plan (for example, inability to find a plan offering required specialty care).
How exemptions worked
- Applications were submitted through the Health Insurance Marketplace.
- Exemptions typically covered the month before, the month of, and the month after the hardship, and in some cases could be extended up to a full calendar year.
- Applicants were often required to provide documentation supporting the hardship claim.
- Before 2019, the IRS collected the Shared Responsibility Payment when individuals filed tax returns; an approved hardship exemption exempted the taxpayer from that payment for the covered months.
Current status and practical considerations
- The federal individual mandate penalty was removed starting in 2019, so federal hardship exemptions no longer affect a federal penalty after that date.
- If a federal mandate is reinstated, hardship exemptions would again be relevant for avoiding penalties; individuals should retain documentation of qualifying hardships.
- Historically, people seeking an exemption applied through the Marketplace and provided documentation to substantiate the claimed hardship.