CMS announces plan to make it easier to avoid ACA's tax penalty

Health insurance form with wood pen, basic calculator, white piggy bank, and pile of coins
CMS simplified the process for claiming a hardship exemption from the individual mandate penalty on Wednesday. (Getty Images/michaelquirk)

The Trump administration is making it easier to claim a hardship exemption from the Affordable Care Act (ACA) individual mandate tax penalty.

Consumers who do not buy a plan this year can claim a hardship exemption without obtaining an exemption certificate number (ECN) when they file their taxes next spring, according to a document (PDF) released Wednesday by the Centers for Medicare & Medicaid Services.

The ACA allows consumers who have “suffered a hardship with respect to the capability to obtain coverage under a qualified health plan” to obtain an exemption from the penalty. These hardships include an unexpected financial or domestic event or “other circumstances.” Consumers can also obtain an exemption if buying a plan would preclude them from purchasing basic needs, such as food and clothing.

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The guidance applies to the 2018 tax year, officials said.

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The news comes after lawmakers zeroed out the individual mandate penalty in their tax overhaul package that passed late last year, but that doesn't go into effect until 2019. Consumers would still be subject to the existing penalty if they do not claim an exemption.

The amount a household pays varies, but the penalty for an adult who does not have an exemption is $695 or 2.5% of their annual household income—whichever is higher.

“The individual mandate penalty is yet another example of how the ACA hurts low and middle-income Americans the most, and today’s action reflects our commitment to minimize the impact of Obamacare’s failures,” the agency said in a press release.

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This guidance is part of the agency’s response to President Trump’s first executive order, which directed agencies “to minimize the unwarranted economic and regulatory burdens” of the ACA.

More than 5 million households that paid the penalty in 2015 earned $50,000 or less, CMS noted. The IRS collected $3 billion from the penalty that year.