The federal health care reform law signed by President Obama in March 2010 will require most U.S. citizens and legal residents to have health insurance starting in 2014. These people will be required to purchase insurance or pay a flat-fee tax penalty or a percentage of taxable income, whichever is greater, according to the Kaiser Family Foundation.
The tax penalty works out to $95 in 2014, $325 in 2015 and $695 in 2016. The taxable income figures are 1 percent in 2014, 2 percent in 2015 and 2.5 percent in 2016.
While the majority of U.S. citizens and legal residents will be subject to these penalties, there are certain groups that will be exempt.
- Members of certain faiths: Practitioners of certain religions will be free from tax penalties. Under this exception, you must certify you are a member of a recognized religious sect. Who is exempt and what proof is needed are described in Internal Revenue Code Section 1402(g)(1).
For example, an exempt people must adhere to the established teachings of a sect that has been in continuous existence since 1950. Such people must be “conscientiously opposed” to accepting benefits from any private or public insurance that makes payments in the event of death, disability, old age or retirement, or that makes payments toward the cost of medical care. This includes Social Security.
For instance, Amish people who are exempt from paying Social Security and Medicare taxes (and therefore do not accept any of their benefits) may be exempt from the health care mandate and tax penalties.
- Health care sharing ministries: Nonprofit health care sharing ministries are organizations with members who share religious beliefs and agree to live certain lifestyles. Members pay shares toward their ministry, much like a conventional insurance premium, in exchange for health care when they need it. Medi-Share, a health care sharing ministry from the Christian Care Ministry, for example, matches members’ contributions with other members’ eligible medical bills on a monthly basis.
To be exempt from tax penalties, people must certify that they are members of a recognized religious sect that shares a “common set of ethical or religious beliefs” and shares medical expenses among members according to those beliefs, regardless of where they live or work.
These ministries must have been in existence continuously since at least Dec. 31, 1999, with uninterrupted medical expense sharing among members since then. These ministries must maintain a person’s membership even after developing medical condition, and must conduct annual audits performed by an independent CPA firm and make those records available to the public.
- Income restraints: Tax penalty exemptions will be granted people for whom the lowest-cost plan option exceeds 8 percent of income and for those with incomes below the tax filing threshold, according to the Kaiser Family Foundation.
- Hardships: Those suffering hardships may be exempt from the tax penalties of the health care law. If the U.S. Department of Health and Human Services determines someone has suffered a hardship that prevents them from obtaining qualified health insurance coverage, he or she may be exempt.
Also exempt from tax penalties are Native Americans, those who haven’t had coverage for up to 90 days, undocumented immigrants and imprisoned people, according to the Kaiser Family Foundation.