If you don’t have health insurance, you might get a little uneasy around tax season. After the Affordable Care Act was signed into legislation, all tax payers are required to either have health insurance or pay a penalty—which puts people who can’t afford health care and those who missed open enrollment in a tough bind. If you’re in this camp, don’t panic quite yet. There are exceptions to the rule, and you may be able to claim a coverage exemption using IRS Form 8965. Keep reading to learn about 8965 instructions and how you just might be able to avoid paying a penalty on your tax return.

What is Form 8965?

IRS Form 8965, Health Coverage Exemptions, is a document used by taxpayers who either need to claim or report a coverage exemption. It also contains instructions for how to figure out your shared responsibility payment for any month you (or another member of your tax household) had neither health care coverage nor a coverage exemption. For the purpose of Form 8965, a “tax household” generally includes you, your spouse (if filing a joint return), and any individual you can claim as a dependent.

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What is a Coverage Exemption?

If you’re granted a Form 8965 exemption, it means that you are exempt from the individual mandate—the part of the law that requires you to have health insurance. Due to your exempt status, you will not be required to pay a fee for any month you are uninsured.

In most cases, you can claim a coverage exemption using IRS Form 8965 alongside your federal tax return. In a few circumstances, you need to fill out an application, print it, and mail it to the Health Insurance Marketplace for review. If they approve and you receive exemption granted by the marketplace, you’ll report it during your tax return by following the IRS Form 8965 instructions.

Who Qualifies for Health Care Exemption Form 8965?

There are many different reasons a taxpayer may receive a health coverage exemption for which Form 8965 is required. Read through the following types of exemptions to see if any of these circumstances apply to your financial situation; if so, consider taking the time to follow the 8965 instructions or seek professional tax preparation in order to avoid a penalty fee.

  • Income-related exemptions: You can claim an exemption if your income is below the tax filing threshold. Also, if the lowest-priced coverage available to you, either through the marketplace or job-based plan would cost more than 8.16% of your household income, you can claim an affordability exemption using Form 8965.
  • Health coverage-related exemptions: If you were only uninsured for one to two months, you may qualify for the short gap exemption. You may also be exempt if you live in a state without an expanded Medicaid program, and your household income is 138% below the federal poverty level.
  • Group membership exemptions: You can claim a Form 8965 exemption for membership in certain groups including a federally recognized tribe (or are eligible for services through an Indian Health Service Provider), a recognized health care sharing ministry, or a member of cognized religious sect with religious objections to insurance, including Social Security and Medicare (application required).

Other exemptions which would require you to file Form 8965 include being incarcerated, as well as being a U.S. citizen who is living abroad or not legally present. Lastly, hardship exemptions differ from others because they’re temporary, and typically exempt you from the individual mandate for less than a year. The exemption is usually only granted during the time you’re experiencing hardship. For example, if there was a death in the family, the exemption would only apply to the month of the death and the month before. Other hardship scenarios include:

  • You were homeless
  • You faced eviction or foreclosure
  • You filed for bankruptcy
  • You had a medical expense that you couldn’t pay and resulted in debt
  • You received a shut-off notice from a utility company
  • You experienced domestic violence
  • You experience substantial property damage caused by a fire, flood, or other natural or human-related disaster
  • You incurred an unexpected increase in expenses due to caring for an ill, disabled, or aging family member
  • You experienced a hardship obtaining health insurance

This list of Form 8965 exemptions is more ambiguous than the other examples, and the government deals with each application on a case by case basis. For the fastest answer, mail in your application before the open enrollment period begins. If you qualify, you’ll be mailed an exemption certificate number which you’ll report on your Health Care Exemption Form 8965. If your application is denied, you have the opportunity to appeal that decision.

IRS Form 8965 Instructions

If you need to claim or report a health coverage exemption, be sure to carefully follow the 8965 instructions line by line, making sure not to gloss over any critical information.

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If you or another member of your tax household was granted a coverage exemption from the Marketplace, complete Part I of Form 8967.

If you or another member of your tax household is claiming a coverage exemption on your tax return, complete Parts II and III of Form 8967. The amount of required information may vary depending on your situation.

If you could not find access to affordable coverage and did not receive a health care exemption, you may have to pay a penalty. Use the 8965 instructions to calculate the cost of your shared responsibility payment, and then report this payment on your tax return (Form 1040, line 61; Form 1040EZ, line 11).

If you’re not required to file a tax return, your tax household is exempt from the shared responsibility payment and you do not need to file Form 8965.

To ensure your greatest shot at claiming a coverage exemption, trust the dedicated team of Community Tax practitioners to advocate on your behalf. We offer full tax filing services and are happy to prepare your IRS Form 8965 to free you up from stress and worry. We’ll work closely with your unique situation to find the best possible tax resolution, and we’ll pour through every detail to see if we can help you save on any other qualifying credits, deductions, and write-offs. Get in touch to see how we can help solve any of your tax-related needs.