Health Care Tax Exemptions: Income, Hardship, and How to Claim

Health care tax exemptions matter far less at the federal level than they used to: the federal penalty for going without insurance has been $0 since 2019, so no exemption is needed on a federal return. Exemptions still do real work in the five states and the District of Columbia that run their own insurance mandates, where a qualifying reason can wipe out a penalty that would otherwise show up on your state return.

Where a Penalty Still Exists

The Affordable Care Act’s individual mandate is still in the tax code at 26 USC 5000A, but the Tax Cuts and Jobs Act reduced the shared responsibility payment to zero starting with the 2019 tax year.¹² No money changes hands at the federal level. The IRS removed the health coverage checkbox from Form 1040 and stopped requiring Form 8965 with the 2019 filing season.³

Six jurisdictions have kept or added their own mandates: California, Massachusetts, New Jersey, Rhode Island, Vermont, and the District of Columbia. Vermont requires coverage but attaches no financial penalty. The other five charge a penalty calculated as the higher of a flat dollar amount or a percentage of household income, capped at the cost of a bronze-level plan. California’s 2025 flat penalty, for example, is $950 per adult and $475 per child, up to a family cap of $2,850, or 2.5% of income above the filing threshold.⁴ Massachusetts sets its penalty on a sliding scale by income as a percentage of the federal poverty level.⁵

If you don’t live in one of these jurisdictions, an uninsured month costs you nothing at tax time and no exemption paperwork applies. What follows is for people whose state does charge a penalty.

Income-Based Exemptions

The most common reason a penalty disappears is simply that your income is too low. If you earn under the federal filing threshold, you owe no penalty and file no exemption form. For 2026, those thresholds are $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household.⁶

An affordability exemption covers people whose cheapest available coverage would eat up too much of their income. Federal law sets the trigger at coverage costing more than 8% of household income, adjusted each year for premium growth.⁷ States use their own numbers. California’s affordability threshold for the 2025 tax year is 7.28% of household income.⁴ The comparison is between the cost of the cheapest qualifying plan available to you and your household income for the year, so check your jurisdiction’s current figure before you file.

Short Coverage Gap

A brief lapse doesn’t automatically cost you anything. Most state mandates exempt a short coverage gap of three consecutive months or fewer during the year. Massachusetts uses a slightly different measure: gaps of 63 consecutive days or less.⁵ Two important limits apply. If you have more than one gap in the same year, only the first one is typically exempt. And if a gap stretches past the cutoff, the penalty generally applies to every uninsured month, not just the ones beyond the limit.

Membership and Status Exemptions

Several categories of people are exempt from the mandate regardless of income.

Religious Beliefs

Two distinct religious exemptions exist. The first covers members of a recognized religious sect described in IRC Section 1402(g)(1) whose established tenets oppose accepting benefits from private or public insurance, including health coverage. Members apply for an exemption certificate through the Health Insurance Marketplace.⁸ The second covers individuals who rely solely on prayer or other religious methods of healing and attest that they received no medical health services during the preceding tax year.

Health Care Sharing Ministries

Members of a qualifying health care sharing ministry are exempt. The organization must be tax-exempt under Section 501(c)(3), share medical expenses among members with common ethical or religious beliefs, continue membership after a member develops a medical condition, have existed continuously since December 31, 1999, and undergo an annual audit by an independent CPA firm made available to the public.⁷ The 1999 cutoff is fixed, so newer cost-sharing arrangements do not qualify.

Federally Recognized Tribe Members

Members of federally recognized Indian tribes are exempt for any month of membership. No income or affordability test applies.⁷

Incarcerated People

An exemption applies to people incarcerated while serving a sentence. It does not cover individuals being held while charges are pending.⁸

People Not Lawfully Present

Anyone who is not a U.S. citizen, national, or lawfully present alien is excluded from the mandate.⁷ These individuals are generally ineligible for Marketplace coverage.

Citizens Living Abroad

Americans overseas are treated as having qualifying coverage if they meet the physical presence test (outside the United States for at least 330 full days within any 12-month period) or the bona fide residence test (residents of a foreign country for an entire tax year, qualifying for the foreign earned income exclusion under IRC Section 911).⁹ Fail both tests and you’re expected to carry minimum essential coverage or find another exemption.

Hardship Exemptions

Circumstances that make obtaining coverage genuinely unrealistic can qualify you for a hardship exemption. Recognized hardships include:¹⁰

Homelessness
Eviction or foreclosure, or facing either
Domestic violence
Death of a close family member
A fire, flood, or similar disaster that caused substantial property damage
Receipt of a utility shutoff notice
Substantial medical debt

Coverage typically extends to the month before the hardship began, the months of the hardship itself, and the month after, with the Marketplace able to extend the exemption up to a full calendar year in some cases.¹¹ These exemptions expire; once the hardship period ends you need coverage or a different exemption.

How to Claim an Exemption

Federal returns require nothing. Because the federal penalty is $0, you do not report coverage gaps or claim exemptions on Form 1040.³

State returns are where the work happens. California uses Form FTB 3853, which requires an exemption code for each household member and each uninsured month.⁴ Massachusetts uses Schedule HC with the state income tax return. New Jersey, Rhode Island, and the District of Columbia each have their own reporting requirements. Check your state tax authority’s site for the current form and instructions.

Some exemptions, particularly religious sect and hardship exemptions, require an Exemption Certificate Number from the Health Insurance Marketplace. Apply through the Marketplace; if you qualify, you’ll receive a notice with a unique ECN to enter on your state form.¹² If your application is still under review at tax time, write “pending” in the ECN field.¹¹

Before you file, gather full legal names, dates of birth, and Social Security numbers for every household member needing an exemption, along with household income figures for the year. For hardship claims, keep documentation showing when the event happened and what it involved: eviction notices, foreclosure filings, utility shutoff notices, medical bills. Your state may ask for verification after the return is in.

1
Internal Revenue Service. Questions and Answers on the Individual Shared Responsibility Provision
2
Congress.gov. The Individual Mandate for Health Insurance Coverage: In Brief
3
Internal Revenue Service. Affordable Care Act Tax Provisions for Individuals and Families
4
Franchise Tax Board. 2025 Instructions for Form FTB 3853
5
Mass.gov. TIR 26-1: Individual Mandate Penalties for Tax Year 2026
6
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
7
Office of the Law Revision Counsel. 26 USC 5000A – Requirement to Maintain Minimum Essential Coverage
8
Office of the Law Revision Counsel. 26 USC 5000A – Requirement to Maintain Minimum Essential Coverage
9
U.S. Embassy Mauritius. Affordable Care Act Information
10
HealthCare.gov. Health Coverage Exemptions, Forms and How to Apply
11
Centers for Medicare and Medicaid Services. Hardship Exemption Information
12
HealthCare.gov. Exemption Certificate Number (ECN)