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What You Must Know Now to Avoid the Obamacare Penalty

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For millions of Americans, time is running out to get qualifying health-insurance coverage under the Patient Protection and Affordable Care Act, better known as Obamacare. Yet even though penalties under Obamacare for not having coverage can be expensive for many families, what many don't know is that there are extensive exemptions that could prevent you from having to pay those penalties.

Understanding the Obamacare Penalty

One confusing aspect of the penalties under Obamacare is the complex calculations to figure out how much you owe.

To come up with your penalty for 2014, you have to look at two numbers. You calculate one of those numbers by taking $95 per adult and $47.50 per child in your family, and then taking either the total amount or the family maximum of $285, whichever is less. The second number comes from looking at your income, subtracting your appropriate tax-filing threshold of $10,000 for single filers and $20,000 for joint filers, and then multiplying the result by 1 percent. Whichever of those two numbers is greater is the amount of penalties that you'll owe if you don't have qualifying coverage or have an exemption.

In part to respond to the confusion about calculating penalties , the House of Representatives is expected to vote on legislation to eliminate the Obamacare penalty for the remainder of 2014. But there's no guarantee that would become law, leaving those without an exemption on the hook for penalties.

In addition, it's important to realize that even if you have insurance, you might still owe penalties under Obamacare. To avoid penalties, your coverage has to include certain basic benefits that, such as maternity care and mental-health care.

Many Ways to Be Exempt From Obamacare Penalties

The list of allowable exemptions from Obamacare is surprisingly long. The first is that you're allowed not to be covered for three months of the year, which is what makes the March 31 deadline so important. Those who don't have to file tax returns due to low income don't owe a penalty, nor do members of federally recognized Native American tribes, health-care sharing ministries, religious sects with objections to insurance, incarcerated prisoners and those who don't have legal immigration status.

One of the most important exemptions is the financial standard. If the lowest-cost coverage available would cost more than 8 percent of your household income, then you won't owe a penalty if you don't obtain that coverage.

In addition, you can qualify for many hardship exemptions. The hardship exemption application form from the government's Health Insurance Marketplace website lists 13 categories of exemptions as well as a 14th category for "other hardships." Some categories require no supporting evidence, such as those who are homeless or recently suffered domestic violence. Others require only basic documentation, including having received notice of eviction or foreclosure, getting a shut-off notice from a utility, having filed for bankruptcy or having suffered property damage due to a natural disaster.

Also among the exemptions are:
  • The death of a close family member.
  • Having medical expenses that you could pay at some point in the past two years.
  • Having unexpected higher costs from caring for a family member.
  • Having a child denied for Medicaid and Children's Health Insurance Program coverage, with another person required to provide medical support to the child.
  • Denial of Medicaid because your state didn't expand its Medicaid program.
  • Notice of cancellation of existing insurance, with other plans being unaffordable.
  • Having gotten a favorable eligibility appeals notice.
You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.

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