Obamacare’s tax penalty sows confusion among undocumented immigrants

Preparing to pay his taxes, a few weeks ago a friend of mine asked me a question. He does not have health insurance and he wanted to know if he was on the hook for the penalty. Last year, the first time the Affordable Care Act penalized anyone without insurance, he paid the fee. But this year, the cost was going up. My friend, an undocumented resident who left violence-ridden Honduras six years ago, wanted to know if he really owed the money.  

“I think so,” I answered. As someone who writes about the Affordable Care Act, I knew that everyone without health insurance was on the hook for the penalty, which this year amounts to $325, or 2 percent of family income, whichever is more.

I asked another friend of mine who prepares other people’s taxes, including mine, for a living. Do undocumented residents have to pay the penalty? “I think so,” he said.

We were wrong, but we weren’t the only ones confused.

“There is a lot of misinformation that we’re trying to clarify,” said Imelda Plascencia, health policy outreach manager for Latina Coalition for a Healthy California.

It turns out the IRS definitely expects my friend to pay his fair share of taxes. It even created a special identification number known as the ITIN (Individual Tax Payer Indentification) in 1996 for undocumented people who aren’t eligible for Social Security numbers. But he’s not on the line for the penalty, otherwise known as the Shared Responsibility Payment. Undocumented residents are excluded.

“They know it’s a requirement to … have health insurance, however, they’re not very aware that they are exempt from” the penalty, said Plascencia of the Latino Coalition, referring to individuals in California’s undocumented population, which numbers somewhere around 2.4 million.

The same is true for those with Deferred Action for Childhood Arrivals (DACA) status, which may be granted to residents who were brought to the United States before their 16th birthday and before June 2007. They don’t have full legal status, but they now can hold social security cards and have been granted stays against deportation.

Also exempt from the lack-of-insurance penalty are members of federally recognized Native American tribes; U.S. citizens who lived abroad for 330 days during the year; and individuals with qualifying hardships, such as earning less than $20,600 a year for a married couple.

Instead of paying the penalty, those with DACA or undocumented status must file a special form, Form 8965 and indicate the reason for the exemption. Reasons include not being “lawfully present” in the U.S. However, individuals who file the form are not at risk for deportation, Plascencia said. The IRS follows strict privacy rules, which includes not handing over any information to the Department of Homeland Security.

The logic for why undocumented residents don’t have to pay the penalty is clear. As my friend and other undocumented residents know, they are not eligible for health insurance through federally funded programs such as Medicaid. Nor are they eligible for subsidies offered through Covered California, or the federal health insurance exchange. Instead, if they want health coverage, the undocumented must pay full price on the private market. Many can’t afford to do so.

It sounds straightforward, but like much immigration law, there are complications.

Undocumented parents with children who were born in the United States aren’t required to have health insurance, but they’re responsible for making sure their children have it.  Green card holders who are working in the United States must also purchase health insurance or pay the penalty.

Meanwhile, the DACA community sits on a fuzzy line — lawfully present in the U.S. but lacking full resident status. That’s where there’s the most confusion, said Matthew Lopas, a health policy attorney for the National Immigration Law Center.

Those with DACA status now have social security numbers, which allows them to legally work, he said. “Some people were thinking Social Security number — must be eligible. Must be part of the mandate. But it’s not informative of whether or not someone is eligible,” Lopas said.

Complicating matters, in California, those with DACA status are now also eligible to apply for Medicaid in California. However, DACA holders are still blocked from receiving subsidies or purchasing health insurance on any of the health insurance exchanges.

Organizations that work with the Latino community say there’s still lots of confusion, but less now than a year ago, when the penalty first came into play. Then, there were reports of fraud, with some unscrupulous tax preparers telling undocumented residents to write the check out to them, Lopas said.

This year, groups around the state say there’s work to do, but the word is getting out. Through FAQs, word of mouth, social media and tax preparation webinars the information is spreading. “We work very closely with immigrant groups that have members,” said Betzabel Estudillo. “We wanted to make sure they knew what to do.”

[Photo by Chris Potter via Flickr.]