8% unaffordable exemption confusion

[Gretel]

Let's say there is a married couple and one of them has excess to health insurance through the employer who offers single coverage only. This amount being 7% of income. Second person goes to market place and premium is 6% (single coverage) of income for a total of 13% of income for health insurance. What is the exemption based on for the second person, 6% or 13%? Only thing I am sure about is that first person is not exempt.

[TaxGuyBill]

Unfortunately, neither one would be exempt. The "unaffordable" exemptions don't combine like that.

[Gretel]

Unfortunately, neither one would be exempt. The "unaffordable" exemptions don't combine like that.

I am picking up my own old posting. I am sure the answer is the same but would like to share the situation. Single mom is covered be employer but her son is not and did not have health insurance. Son does not have income, so mom's income is used for the 8% calculation for her son's insurance. She has too much income but if her own premiums could be considered she would qualify for the exemption. One would think that the premiums she pays would be considered for the 8%.

This part absolutely does not make sense and I hope that this will change for 2015.

[kathyc2]

The way I'm reading the 8965 instructions is if the combined cost for both people is more than 8%, both are exempt. Keep in mind that if the cost for the employer premium is pre-tax, you need to add it back to W-2 income for this calculation.

[David1980]

One of the hardship exemptions for an exemption applied for through the marketplace is "you experienced another hardship in obtaining health insurance". Would it work for this scenario? Maybe? Doesn't hurt to try.

[TaxGuyBill]

Yes, her pre-tax insurance costs that she paid are added to Household income to determine insurance is "unaffordable" for the son.

Is the son eligible for her employer insurance? If so, you need to use that amount to determine if it is "unaffordable", not the Marketplace costs.

[Gretel]

There are no pre-tax insurance costs, just after tax and thanks for pointing this out. Her son is not eligible for her employer's insurance. She decided to not try to get an "other hardship" exemption through the Marketplace for a $95 penalty but also thanks for reminding me that this could be a solution. I am really curious to learn what "other hardships" were accepted. Maybe we learn more about this after filing season.

[TaxGuyBill]

You said the the mother has insurance through her employer, right? Does she really pay for her insurance with AFTER tax money? Almost all employer insurance is pre-tax. Anyways, I had misunderstood your question, so it doesn't really matter.

The bottom line is that you can't combine the cost of employer insurance with Marketplace insurance to determine the "unaffordable" exemption. As you say, this is something that really needs to be changed.

[kathyc2]

You said the the mother has insurance through her employer, right? Does she really pay for her insurance with AFTER tax money? Almost all employer insurance is pre-tax. Anyways, I had misunderstood your question, so it doesn't really matter.

The bottom line is that you can't combine the cost of employer insurance with Marketplace insurance to determine the "unaffordable" exemption. As you say, this is something that really needs to be changed.

I disagree. 8965 instructions page 11 and 12 where coverage costs are combined to determine 8% affordability.

http://www.irs.gov/pub/irs-pdf/i8965.pdf

[TaxGuyBill]

I disagree. 8965 instructions page 11 and 12 where coverage costs are combined to determine 8% affordability.

http://www.irs.gov/pub/irs-pdf/i8965.pdf

Can you cite any specifics? I don't see anything that shows it can be combined.

[kathyc2]

Can you cite any specifics? I don't see anything that shows it can be combined.

Examples 1 and 3 starting on page 11 of linked instructions. They are using 2 different employer plans rather than 1 employer plan and one marketplace plan, but I don't see where that would make a difference.

[TaxGuyBill]

Examples 1 and 3 starting on page 11 of linked instructions. They are using 2 different employer plans rather than 1 employer plan and one marketplace plan, but I don't see where that would make a difference.

Unfortunately, the rule is specifically only for employer insurance. Here is the legal gibberish:

(5) Self-only coverage in an eligible employer-sponsored plan. The IRS may allow an applicant to claim an exemption for a calendar year if he or she, as well as one or more employed members of his or her family, as defined in 26 CFR 1.36B-1(d), has been determined eligible for affordable self-only employer-sponsored coverage pursuant to section 5000A(e)(1) of the Code through their respective employers for one or more months during the calendar year, but the aggregate cost of employer-sponsored coverage for all the employed members of the family exceeds 8 percent of household income for that calendar year;

https://www.law.cornell.edu/cfr/text/45/155.605#g_5

http://www.irs.gov/pub/irs-drop/n-14-76.pdf#page=2

[kathyc2]

Interesting. Isn't it pretty unusual though for the employee to not have the option of purchasing dependent coverage? I know of a lot of companies that don't subsidize the dependent portion at all, but all the ones I'm aware of the employee has the option of buying it on the group plan at full cost. A lot of people opt not to do to it being cost prohibitive.

[TaxGuyBill]

Yes, it is unusual for an employer not to offer dependent coverage (but not offering spouse coverage isn't as unusual). The ACA laws for large employers to offer dependent coverage (but not spouses), or they pay a penalty, but that is part of the rules that were delayed until 2015/2016.

As you say, if it is offered but at full cost, in many cases it would be "unaffordable" for the dependent (Code "A" on Form 8965).