ACA- Remove dependant to eliminate penalty

[Taxadvisor VA]

TP & SP support an older woman as a member of household. She has chosen for religious reasons not to get health insurnace coverage. What this does is cause the taxpayer to be hit with the "shared responsibility payment".
This client asked can I remove this dependent which doesn't seem right b/c this client and wife are providing for this individual and she is a dependent. On the other hand, the tax savings from the dependency deduction is less than the penalty.

Is there a quailfied exemption for this situation? _________
ACA does say each member of your household should be covered for health insurance so removing the dependent is not an option.

Let me know if anyone has had this type experience.
Best Regards,

Taxadvisor VA

[Corduroy Frog]

Religious Reasons

There is no penalty for someone who is exempt. The lady might just be exempt based on religious reasons, but this would be a legal question with an answer to be found in the ACA or in court cases, not a tax consideration.

[Burke]

There is a place on 8965 to enter an exemption code. Check them out to see if one applies. It may have to be obtained from the Marketplace. PS: Removing the exemption from the return does not change anything. Still subject to penalty if no exception applies.

[Corduroy Frog]

Dependency and Coverage

Burke, why would that be?

Is it because the obligation is to provide for everyone who lives in the household whether they are dependents or not? (Hmmm wonder how that sets with single women who are custodial but daddy claims the dependent)

There is a follow on to this question. If someone living in the house has to be covered irrespective of dependency, does the income of a non-dependent have to be included in "total household income" under ACA?

[TaxGuyBill]

Burke, why would that be?

Is it because the obligation is to provide for everyone who lives in the household whether they are dependents or not? (Hmmm wonder how that sets with single women who are custodial but daddy claims the dependent)

The Treasury Department specifically addressed that. Also, "dependent" and "exemption" can be two different things. If the person qualifies as a dependent, they ARE a dependent, even if the taxpayer does not claim the exemption. And yes, if the non-custodial parent claim the dependent with a Form 8332, the non-custodial parent is responsible for the health insurance or penalty.

http://www.irs.gov/irb/2013-39_IRB/ar09.html#d0e1915

There is a follow on to this question. If someone living in the house has to be covered irrespective of dependency, does the income of a non-dependent have to be included in "total household income" under ACA?

No. If the person is not a dependent, OR if the person qualifies to be a dependent but is not actually claimed, their income does not count.

You may be thinking, "in the last comment, you just said they ARE a dependent, even if the taxpayer does not claim the person, and NOW you are saying their income does not count if not actually claimed?". The answer is "Yes".

When you look at the legal gibberish, and the explanation in the link above, it's a difference between IRC §151 and IRC §152. The penalty applies to anybody that qualifies as a dependent (§152), but the "family size" and income is based on the number of exemptions taken (§151).


Boy, all of these 'twists and turns' of the ACA annoying! :-)