Centerpiece Provision of the ACA – The Premium Tax Credit

If your clients or their family members meet certain criteria, they’ll be exempt from the Shared Responsibility Payment (Affordable Care Act penalty) and won’t have to obtain coverage. Depending on the type of exemption you are claiming, there are a wide variety of exemptions available from either the Marketplace (Health Insurance Exchange) or IRS. It’s estimated that as many as 23 million (or 16 percent) taxpayers may qualify for an exemption.

Exemptions granted by the Marketplace should be obtained at the earliest opportunity, while exemptions from the IRS can only be claimed on your clients’ tax returns. Exemptions are allowed by the government as long as the circumstances that lead to the exemption persist. All exemptions need to be reported on a new Form 8965 and attached to the return.

Types of Exemptions

The following table from Form 8965 instructions provides a short description of each exemption type available in tax year 2014. It also indicates whether the exemption is granted by the Marketplace and/or claimed on the tax return. If an exemption can be obtained from either source, the government recommends that clients claim it on the tax return because the process is more efficient. If the Marketplace grants them an exemption, they will provide an Exemption Certificate Number (ECN) that will be entered on Form 8965 to prove to the IRS that the exemption is valid. Taxpayers should enter “pending” on Form 8965 if they have not received an ECN by the time they file the return.