Indian Tax Exemption: What You Need to Know

Indians and taxes: health insurance coverage has important tax ramifications.

The claim that Indians do not generally have to pay federal taxes is a load of hooey, but few of us have not heard it. The Indian tax exemption is like the unicorn, but it does get attention, and right now I need the attention of the vast majority of Indians who do in fact pay federal income tax.

The Affordable Care Act AKA Obamacare contained a tax on “free riding,” failing to carry health insurance. There was a big legal dispute about whether the sum was a tax or a penalty. The government calls it a “shared responsibility” payment. Whatever it is called, it’s money out of your pocket unless you buy insurance or claim an exemption.

The tax on free riding is to discourage people from using the fact that insurance can no longer be denied because of a preexisting condition to go without insurance until, having gotten seriously ill, they really must have health insurance. There is a sense in which this tax really does have an Indian exemption.

Tax season is almost over. Most necessary tax documents were due to you at the end of January and Indians who do not carry health insurance will want to download Form 8965 here. Instructions for completing the form are here, but we’ll quote the exemption that helps most Indians:

Members of Indian tribes — You were either a member of a Federally-recognized Indian tribe, including an Alaska Native Claims Settlement Act (ANCSA) Corporation Shareholder (regional or village), or you were otherwise eligible for services through an Indian health care provider or the Indian Health Service.

Some un-enrolled Indians may live in states that did not accept the federally funded Medicaid expansion under Obamacare. If that is your situation, you are exempt if you would have been eligible for Medicaid but did not get it because your governor did not choose to cover you. Those states are Alabama, Florida, Georgia, Idaho, Kansas, Maine, Missouri, Mississippi, North Carolina, Nebraska, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Wyoming, and Wisconsin. The exemption looks like this:

Resident of a state that did not expand Medicaid — Your household income was below 138 percent of the federal poverty line for your family size and at any time in 2014 you resided in a state that did not participate in the Medicaid expansion under the Affordable Care Act.

Keep in mind, if part of your family is enrolled and others are not, that every individual named in your tax return must either be insured or have an exemption. There is another exemption for people who just flat out cannot afford coverage, and there is a worksheet in the instructions for Form 8965 that will help you determine whether you can get the government to agree you can’t afford insurance.

The general idea of an “Indian tax exemption” may be like a unicorn, but this particular exemption is more like a buffalo. It can be very helpful to you.

This story was originally published January 19, 2015.

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