Posted by Dennis Jao

The IRS Form 8965

The IRS Form 8965

If you request a medical exemption, you will need to complete IRS Form 8965 when filing for federal income tax. This form helps you comply with the Affordable Care Act's rules that require health insurance coverage for almost everyone in the country. Here you will find all you need to know about tax form 8965 and who is authorized to use it.

A tax advisor can help you optimize your tax strategy based on your financial needs and goals. 


Who needs Form 8965?

You probably know that the Affordable Care Act's passage ushered in an era where all Americans were obliged to have "minimum essential coverage" or pay a fine. Well, not exactly everyone. There are exemptions. However, for each month in the fiscal year, you must have medical coverage, request a waiver of coverage, or pay a fine.

The exemptions allow you to choose not to have the necessary health insurance without paying a fine when filing taxes. This fine is known as the shared responsibility payment. It is important to understand what you need to do to get one of these exemptions. "I forgot the registration deadline" won't count.


Health coverage exemptions

The full list of health coverage exemptions can be found on page 3 of the instructions for Form 8965. Here are some of the exemptions categories for which you can claim for a specific year:

  • A member of your family was born, deceased, or adopted, so you cannot check the box indicating that the whole family had 12 months of health insurance.

  • It is not possible to pay for the coverage.

  • You are a member of an Indian tribe.

  • You are a member of certain qualified religious sects.

  • You have been without coverage for less than three consecutive months.

  • You have encountered "general hardship."

  • You have lived abroad for at least 330 days.

  • You have participated in one of certain Medicaid programs that are not considered minimum essential coverage.

  • You live in a state with no expanded Medicaid, and your income is below 138% of the poverty line for your family size.

  • You were a member of a health exchange ministry.

  • You were imprisoned.

  • You were turned down in a state that did not expand Medicaid.

  • You were unable to renew your current coverage.

  • Your income was below the tax filing limit.


How to complete Form 8965

So, are you eligible for any of the above exemptions? You must now document it on Form 8965. First, write your name and SSN at the top of the form. From there, you will need to decide whether to complete Part I, II, or III of the form.

If you or a family member is requesting a marketplace-granted exemption, enter the name, social security number, and exemption certificate number of each person requesting the exemption in Part I of the form.

What is a marketplace exemption, and what is an exemption certificate number? Certain exemptions from the minimum essential coverage requirement can simply be claimed on Form 8965 when filing taxes.

But other exemptions must be requested in advance and granted by the health insurance market, which will send you an exemption certificate number if your request is successful. Exemptions that require early marketplace registration and an exemption certificate number are exemptions for:

  • Certain religious sect members 

  • General hardship

  • You are not eligible for Medicaid in a state that has not expanded Medicaid coverage

  • You cannot pay for the coverage

  • You cannot renew your current coverage

  • You have AmeriCorps coverage

If you or a family member has a marketplace exemption, enter it in Part I of Form 8965, writing the exempt family member's name, your social security number, and the exemption certificate number that you received from the marketplace. If your marketplace takedown request is still pending, write "pending" in section (c) under "Exemption Certificate Number."

If you or a family member is requesting an exemption not granted by the marketplace, go to Part II or III, depending on your circumstance.

Part II is for those with income below the deposit limit. If your income is low enough that you don't need to file your taxes, you don't need to complete Form 8965 to prove the exemption, and you will automatically be exempt from the fine, also known as a shared responsibility payment. But you can still decide if you want to file taxes, for example, to gain access to tax credits. If so, check one of the two boxes in Part II that apply to your income statement.

If neither Part I nor Part II applies to you, continue with Part III. Here you can place exemptions that are not granted by the marketplace and not based on your income below the registration limit. Qualifying exemptions under Part III include those for short gaps in coverage and those who have lived abroad. In this section, you can request the full list of exemptions except those that only the marketplace can grant.

See the "Types of Coverage Exemptions" table in IRS Form 8965 for the name of the exemption you are requesting and the letter code to enter in Part III of Form 8965. 

For each family member who claims a Part III exemption, you must enter your name, social security number, type of exemption, and exemption period. You can check the "full-year" box or any combination of the 12 months of the year. So, if you had a monthly job shortage in July, you would write down your name and social security number. You must enter "B" in "Type of exemption" and check the box for the month in which you were without coverage, July.


Final Words

If you and other members of your family received health insurance throughout the year, you don't have to worry about Form 8965. But if you qualify for exemptions (the IRS provides a tool that will help you determine if you qualify for this exemption), it is important to take the time to carefully complete Form 8965. Otherwise, you will have to pay the fine.

Once you've determined that you need Form 8965 and completed it correctly, you can attach it to Form 1040, 1040A, or 1040EZ.


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Dennis Jao
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