Q:  I'm an American citizen who lives overseas, though I do pay U.S. taxes. Is there a penalty for American citizens living abroad who don't sign up for health insurance in the U.S.?—P. Hoell, Cali, Colombia

A: While most Americans are required to have insurance or pay a fine that could be thousands of dollars a year, exemptions are granted for many reasons.

In fact, living abroad is one of the top three reasons people qualify for an exemption from buying health insurance, according to the IRS. You're eligible for this exemption if you live outside the U.S. for at least 330 days during a 12-month period.

Still, in a vast majority of cases, exemptions from buying health insurance are granted because a person has a low income or experiences other hardships. And more people are exempted than you might think.

In 2015, nearly 13 million people claimed an exemption from having to buy health insurance, roughly twice the 6.5 million who paid the fine, according to the IRS.

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That number might be larger if everyone eligible for an exemption was aware of it and took advantage. In 2014, for example, the Treasury Department estimates that about 300,000 people paid a penalty they might not have owed.

So it makes sense to understand the exemption eligibility rules. You could also qualify if:

You don’t file a tax return. If your income is below a certain threshold, you don’t have to file a tax return. The exact amount depends on your age, filing status, and gross income. For 2017, for example, a single person with income under $10,400 doesn’t have to pay taxes ($11,950 if you’re 65 or older). A married couple over 65 filing jointly doesn’t have to file a return if their gross income is less than $23,200.

You are low-income and live in a state that didn’t expand Medicaid. If your income is below 138 percent of the federal poverty level (which is $12,060 for an individual) you could qualify for Medicaid insurance. But you don’t have to pay a penalty if you live in one of the 18 states that didn't expand Medicaid and you would have qualified for Medicaid if it had. 

Buying health insurance is a financial burden. The penalty also doesn't apply to individuals for whom marketplace coverage or employer coverage is considered “unaffordable.”  In this case, “unaffordable” means the lowest-cost plan available to you through the marketplace or your employer is greater than 8.16 percent of your income (after any tax credits or employer contributions).

Other financial hardships that could make you eligible include foreclosure, bankruptcy, substantial medical debt, or high costs related to caring for a disabled, ill, or elderly family member. Homelessness, domestic violence, eviction, and the recent death of a close family member might also qualify someone for an exemption. See this full list of reasons.

Note that the penalty isn't triggered if you have a short gap—less than three months—in coverage. You're considered covered for the whole month even if you only had coverage for a single day in that month.


Confused about choosing a health insurance plan for 2018? 
Send us your questions about signing up for job-based insurance, Medicare, or a plan sold on the ACA exchanges this open enrollment season.
 

Most exemptions are claimed when you file your taxes; for some, you need a form specific to your state.

You can access the form and instructions here. If you qualify, you’ll receive a code to include on your tax forms.

If you have other questions about exemptions, there are several tools online that can help. This one from healthcare.gov  identifies exemptions you might qualify for and how and when to claim them.

This calculator from the Kaiser Family Foundation helps estimate what the penalty payment would be if you don't buy insurance and aren't exempt. It will also help you determine what financial assistance you may be entitled to and find the lowest-cost marketplace plan in your area.