What Is the Affordability Exemption From Mandate Penalties?

The affordability exemption from mandate penalties excuses you from health insurance mandate fines when the cheapest coverage available to you would cost more than a set share of your household income. The federal penalty has been zero since 2019, so for most people the exemption’s real work happens in two places: shielding residents of the handful of states that still enforce a mandate, and letting people over 30 buy a lower-cost catastrophic plan through the Marketplace.¹

Why the Exemption Still Matters

The Tax Cuts and Jobs Act of 2017 reduced the federal shared responsibility payment to zero starting with the 2019 tax year. The requirement to carry coverage technically remains in federal law, but there is no federal financial penalty for going without it, and the IRS stopped requiring Form 8965 after 2018.¹²

The exemption is still doing two jobs. If you live in a state with its own mandate, a state-level affordability exemption can wipe out a state penalty. And if you’re 30 or older, qualifying for the exemption gives you access to catastrophic Marketplace plans that would otherwise be closed to you.³

How the Affordability Test Works

The test compares the price of the cheapest coverage available to you against your household income. If the premium exceeds the applicable percentage, coverage is deemed unaffordable and you qualify.

The federal statute sets a base threshold of 8 percent, indexed each year for the gap between premium growth and income growth.⁴ For the Marketplace affordability exemption, HealthCare.gov currently sets the threshold at 7.97 percent of household income.³

A separate threshold governs whether an employer plan counts as affordable, which determines whether you can turn down that plan and shop the Marketplace with premium tax credits. For the 2026 plan year, that Required Contribution Percentage is 9.96 percent of household income.⁵ If the employee-only cost of your employer’s cheapest plan runs above that share of your household income, the plan is unaffordable and Marketplace subsidies open up.⁶

Which Income Figure to Use

The calculation uses Modified Adjusted Gross Income, not gross pay. MAGI starts with the adjusted gross income on your tax return and adds back tax-exempt interest, untaxed foreign earned income, and non-taxable Social Security benefits.⁷ Joint filers combine both spouses’ figures, and dependent income counts if it appears on your return.

Which Plan Sets the Benchmark

The benchmark depends on what’s available to you. Without access to job-based coverage, it’s the lowest-cost bronze plan in your Marketplace area. With an offer of employer coverage, it’s the employee’s share of the cheapest self-only option that employer provides. You need only one of these benchmarks to exceed the applicable percentage to qualify.

Where a State Penalty Actually Applies

Five states and the District of Columbia enforce individual mandates with financial penalties: California, Massachusetts, New Jersey, Rhode Island, and D.C. Vermont requires coverage but does not penalize noncompliance. Everywhere else, there’s no mandate penalty for the exemption to defeat, though the exemption can still unlock catastrophic plan enrollment.

Penalty structures in the enforcing jurisdictions generally take the greater of a flat per-person dollar amount or a percentage of income above the filing threshold. For a single uninsured adult, annual penalties tend to range from roughly $300 at the low end to more than $2,500 for higher earners, depending on the jurisdiction and income level. Most jurisdictions cap the penalty at the cost of an average bronze plan for the household, so you cannot be penalized more than the coverage itself would have cost.

Every mandate jurisdiction offers its own affordability exemption, but the percentage thresholds do not always match the federal figure, and some are stricter. Check the specific percentage your state applies for the filing year in question with the state tax agency or exchange.

How to Claim the Exemption

The path splits based on why you need it.

On a State Tax Return

If you’re covered by a state mandate, you claim the affordability exemption on your state income tax return using a state-specific health coverage form. The worksheet mirrors what federal Form 8965 used to do: you enter household income and the cost of the cheapest available plan, and the form determines whether the premium clears the state threshold. Skipping the form when you lacked coverage will reduce your refund or raise your bill. No mandate state currently requires you to file exemption paperwork before the standard April deadline.

Through the Marketplace

To use the exemption to buy a catastrophic plan, apply through the Marketplace before you enroll. If approved, you receive an Exemption Certificate Number to use during enrollment. To cover a full calendar year, submit the application before January 1 of that year. If you need the exemption for months already past, you can apply at tax-filing time.³

Using the Exemption to Buy a Catastrophic Plan Over 30

Catastrophic plans carry lower premiums and higher deductibles than bronze plans and are normally sold only to people under 30. An affordability or hardship exemption paired with an Exemption Certificate Number lets you enroll at any age.³

For the 2026 plan year, CMS has broadened the doorway. Consumers who are ineligible for advance premium tax credits or cost-sharing reductions based on projected household income may also qualify for a hardship exemption that lets them buy catastrophic coverage. That includes people above 250 percent of the federal poverty level who are ineligible for cost-sharing reductions alone.⁸

If the Math Doesn’t Clear the Threshold

The affordability exemption is a pure calculation. When the numbers fall short but you still couldn’t reasonably get covered, a hardship exemption may fit. Circumstances the Marketplace recognizes include:

Homelessness, eviction, or facing foreclosure
Bankruptcy, utility shut-off notices, or unpaid medical debt
Death of a family member, domestic violence, or unexpected costs caring for a sick or disabled relative
A fire, flood, or other disaster causing major property damage
Being found ineligible for Medicaid in a state that did not expand eligibility under the ACA

Hardship exemptions typically cover the month before the hardship, the months of the hardship, and one month after. The Marketplace sometimes extends coverage for up to a full calendar year.³

Short Coverage Gaps

Brief lapses generally are not penalized. Under the original federal framework and in states that follow it, a gap of fewer than three consecutive months in a year is exempt. Massachusetts uses a 63-consecutive-day standard. A short enough gap needs no exemption application at all.

If Your Exemption Is Denied

You have 90 days from the eligibility decision to appeal a Marketplace denial. The Marketplace may attempt informal resolution first; if that doesn’t satisfy you, request a formal hearing. Marketplace appeal decisions are final and binding, with judicial review potentially available afterward.⁹ If waiting would put your health or coverage at risk, ask for an expedited appeal. State-mandate disputes run through the state tax agency or exchange rather than the federal Marketplace.

1
Internal Revenue Service. Questions and Answers on the Individual Shared Responsibility Provision
2
HealthCare.gov. Exemptions From the Fee for Not Having Coverage
3
HealthCare.gov. Health Coverage Exemptions, Forms and How to Apply
4
Office of the Law Revision Counsel. 26 USC 5000A – Requirement to Maintain Minimum Essential Coverage
5
Internal Revenue Service. Revenue Procedure 2025-25
6
HealthCare.gov. Affordable Coverage
7
Internal Revenue Service. Modified Adjusted Gross Income
8
Centers for Medicare & Medicaid Services. Expanding Access to Health Insurance – Consumers to Gain Access to Catastrophic Health Insurance Plans in 2026 Plan Year
9
Centers for Medicare & Medicaid Services. How to Appeal a Marketplace Eligibility Decision