*Information is based on the latest IRS Health Coverage Exemptions draft and is subject-to-change.
Today, many of us are aware if you aren’t covered by a qualified health insurance plan you could face a penalty when filing your tax return.
But did you know you could also qualify for an exemption? Fortunately, there is a variety available for those who can’t afford the cost of insurance.
Some exemptions require you to apply through the Marketplace – also known as an Exchange. Others can be claimed without submitting an application by filing IRS Form 8965 along with your income tax return.
Form 8965 explained
IRS Form 8965, Health Coverage Exemptions, is the form you file to claim an exemption to waive the penalty for not having minimum health insurance coverage.
If you have coverage through your employer, buy insurance through a Marketplace, or use private insurance, you do not need to file tax Form 8965.
You also don’t need to file Form 8965 if you aren’t required to file a tax return because your income is too low.
For those who don’t have coverage and don’t qualify for an exemption, IRS Form 8965 can help you calculate your penalty as well. If you use TaxAct, the program automatically calculates the penalty for you.
Some exemptions are as easy as checking a box on your return.
If your household or gross income is below the filing threshold, and you don’t have to have health insurance coverage, you don’t need to provide additional documentation or an exemption code when filing your return.
In that case, it’s as simple as checking a box on your tax return. TaxAct can also help with that. The program analyzes your income level and checks the appropriate box on your return if needed.
TaxAct reports exemptions on your return with a special code
TaxAct reports a specific code on Form 8965 for the following exemptions:
- Short coverage gap – no insurance for less than three months in 2017
- Unaffordable premiums – when the minimum amount you must pay is more than 8.16 percent of your household income
- Aggregate self-only coverage deemed unaffordable – defined as two or more family members’ aggregate cost of self-only, employer-sponsored coverage or the cost of any available employer-sponsored coverage for the entire family is more than 8.16 percent of your household income
- Living abroad more than 330 full days during a 12-month period or living as a resident of another country
- Living in the U.S. as neither a citizen or U.S. national, nor as an alien lawfully present in the U.S.
- Membership in a healthcare sharing ministry
- Membership in a Federally recognized Indian tribe or otherwise eligible for services through an Indian healthcare provider
- Incarceration – includes jail, prison, or similar facility
- Medicaid programs available in the state you reside in do not provide minimum coverage
- An individual was added to your household through birth or adoption (only use if you’re claiming another exemption)
- A member of your household died during the year (only use if you’re claiming another exemption)
- Member of certain religious sects
- Marketplace determined you didn’t have access to affordable coverage based on projected household income
- Endured a hardship that prevented you from obtaining coverage
You need Marketplace to take these exemptions
Some exemptions must be granted by the Marketplace.
To claim the following exemptions, you must apply for them and receive an Exemption Certificate Number (ECN). That number must be reported on your tax return to indicate you’re exempt from paying the penalty.
- Membership in certain religious sects
- Hardships that prevent you from getting coverage
- Lack of access to affordable coverage based on projected household income
- Ineligibility for Medicaid solely because you live in a state that does not participate in Medicaid expansion under the Affordable Care Act
To receive your exemption and ECN, you must fill out a form available on HealthCare.gov.
After you sign and mail the form with any required documentation, expect to hear back within two weeks.
Keep in mind, it can take longer if the Marketplace has questions or needs more information.
Therefore, allow plenty of time to apply for an ECN before you want to file your tax return.
Note that certain exemptions require both approval from the Marketplace and a code for the exemption. Other exemptions require just one or the other.
If you apply for an exemption that gets denied, don’t give up. You have 90 days from the date you receive the denial notice to appeal the decision.
File only one Form 8965 per household
While you must claim a coverage exemption for each individual in your household, all exemptions for yourself and your family members can be reported on one Form 8965.
Your household includes yourself, your spouse, and anyone you claim (or could claim) as a dependent on your tax return.
If you are a dependent on someone else’s return, you don’t need to worry about the penalty or filing IRS Form 8965.