Obamacare (Affordable Care Act) penalty for work visa - resident alien who are out of country for short period

[ArunKrish]

I am a resident alien on H1B work visa with my dependents - my wife ( not working ) and 1 year old son. Last year 2015, I was laid off on July and then I got job in September with unemployment status in August. Hence I didn't have medical insurance on  August month for my entire family including my wife and son. I didn't avail CORBA insurance offer from my past employer, since I am sure I would get job soon.  On new job, unfortunately I had work visa issue at end of September, due to which I had left US and stayed in my home country for 2 month period of October and November.  After having visa issue resolved, I only returned to US and joined the work on December, whereas my wife and son still continue staying in home country.In short, I had two breaks of medical insurance coverage:1st break:  August   ( laid off, searching job in US )2nd break:   October and November ( Left US and Stayed in home country )With these inputs, TurboTax reports me that I have to pay penalty for 3 months October - December 2015.  Please find attached screen shot image. Since I had to leave US due to immigration issue, Can I apply for penalty exclusion under hardship category. ?  There is no such exact code in hardship application Form 8965,  matching my situation.

Latest Edit :
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As mentioned above, I didn't have valid visa for 2 months: November and October, hence I lived outside of US in my home country.

[1] Please find attached extracted snap from Form 8965. Based on your input and my understanding, I guess the red highlighted point -"Not lawfully present ..." with exemption code "C"  could be appropriate exemption for my situation.  Please confirm if this is correct.
[2] I have attached another image for "Waive_off_reason" snapshot. This is the list popped up after entering the months with active insurance in Turbotax. Please let me know which reasons I have to choose for my family.
Note: I and my wife are on non-immigrant work visa (H1B /H4) and My son is only US born citizen.

[TaxGuyBill]

If you had remained in the US, would you have been illegally present in the US?

Did you wife and son return to the US?  If so, when?  
If they had remained in the US, would they have been illegally present in the US?

[ArunKrish]

First of all, I and my family never illegally present in the US.
My family returned and joined with me in May 2016.

[TaxGuyBill]

Let me rephrase the question.  *IF* you had lived in the US in October and November of 2015, WOULD you have been illegal due to expired visas or other immigration documents?

[ArunKrish]

I left US on end of September 2015 and stayed in my home county, out of US  for two months - October and November 2015 due to immigration issue and then I have got US visa in November 2015 and came back to US on December 2015.   

Since I was out of US for those 2 months, it was not possible for me to get Health insurance from US company and also I was not eligible to buy insurance from marketplace due to my income being above maximum.

I have called IRS guys this week. They were just going through IRS rules and told that my situation is not an exception.

Its so ridiculous that why Affordable care act blindly enforces penalty on people like me, who have genuine reasons for partial health coverage

[bine22]

The question TaxGuyBill is asking is important for the exception. Assuming your H1B expired when you lost your job in July and you only got the new visa in Novermber, you would have been in the US illegally, had you stayed in September and October (that doesn't mean you were illegally in the US, it only means that you did not have a valid visa for several month). During times you would have been in the US illegally, you would not need to have health insurance, so that woulb be an exception.

[TaxGuyBill]

In other words, if you did not have a valid visa, and therefore could not have lived in the US legally, you do not need to pay the penalty for those months.  If that is the case, please post back and we can tell you how to enter that in TurboTax.

[ArunKrish]

Hi TaxGuyBill, Please refer my latest edit above.  Looking for your valuable inputs.   Thanks.

[TaxGuyBill · Accepted solution]

You do qualify for the "Not Lawfully Present" exemption, but unfortunately it's not going to change your penalty.

To enter that exemption, check the box on the TurboTax exemption screen (your third screenshot) labeled "Spent 330 days outside US", then on the next screen you will check October and November.  It sounds like weird box to check, but that that is the only way to get exemption code "C" for the months of October and November.

However, as I mentioned, it won't change your penalty.  Notice how the penalty applies for December, even though you had health insurance, but your wife and son did not.  Because of your high income, you are paying the penalty based on a percentage of your income, rather than the per-person penalty.  Your son is a US citizen, he was not exempt for those months and does not qualify for the exemption code "C".  He did not have insurance for those months, so the percentage penalty still applies for those months regardless if you were exempt or not.

https://www.healthcare.gov/fees/

Although filing as Married Filing Separately with your wife claiming your son would eliminate the penalty (because she did not have income), your overall tax would be higher, so that is not a good option.