By Joe Touschner and Tara Mancini

As highlighted in the Supreme Court case, we all know that the Affordable Care Act includes a tax on those who choose not to maintain health insurance coverage starting next year. New rules from the federal government spell out just who will face that tax—and more importantly, who won’t. In essence, the rules confirm that only those who have affordable coverage available to them, yet choose not to sign up for an extended period, will be assessed a penalty when they file their income taxes. Individuals who have coverage from any of the following sources need not worry about paying the tax penalty:

o Employer-sponsored coverage (including COBRA coverage and retiree coverage)
o Coverage purchased in the individual market
o Medicare
o Medicaid or CHIP
o Certain types of Veterans health coverage
o TRICARE

The overwhelming majority of people have health coverage that falls into one of these categories. But even for those who don’t have coverage, the law provides for individual mandate exceptions allowing exemptions from the penalty in many situations.  New rules provide clarity on who can qualify.  Exemptions apply for:

o Individuals who cannot afford coverage
o This applies if coverage costs more than 8 percent of a family’s income—and the cost of a family plan is taken into account, unlike in the test for subsidized marketplace coverage
o Taxpayers with income below the filing threshold
o The filing threshold is roughly $10,000 for individuals and $20,000 for married couples.
o Members of Federally recognized Indian tribes
o Religious conscience exemption for members of a recognized religious sects
o Such sects must have been in existence since 1950
o Members of a health care sharing ministry
o Incarcerated individuals
o Individuals who are not lawfully present
o Individuals who experience short gaps in coverage (usually three months or less)
o Individuals who qualify for a hardship exemption

For the hardship exemption, the rule from HHS proposes three situations for qualifying: when an exchange projects there will be no offer of affordable coverage for an individual, even if a turns out to be affordable at year’s end; when an individual’s gross income falls below the threshold for filing taxes, but a filing requirement is triggered by claiming a dependent; and for those who would be eligible for Medicaid, but reside in a state that has not expanded eligibility. Outside of these three scenarios, hardship exemptions will also be considered on a case-by-case basis for individuals with other unexpected circumstances who are unable to obtain coverage. In some cases, families will have to apply to an insurance marketplace for an exemption, while in others the exemption will be processed through tax filings.

With these rules in place, it’s clear that very few people will face the tax penalty for not having coverage. And that’s a good thing—widespread coverage will give families the health and financial benefits of access to affordable care and it will help spread the costs of coverage across the old and young, sick and healthy.

[Editor’s Note:  Read Say Ahhh’s most recent blog on the individual mandate .]