What Is Form 8965, Health Coverage Exemptions?

Form 8965, Health Coverage Exemptions, is a tax document previously used to claim an exemption from the penalty for not having health insurance. This form originated with the Affordable Care Act (ACA), but it is now obsolete for federal tax returns for the 2019 tax year and all subsequent years. Its current use is limited to those filing or amending a tax return for 2018 or an earlier year.

Current Status of Federal Health Coverage Requirements

The requirement to file Form 8965 originated with the ACA’s “individual shared responsibility payment.” This was a tax penalty for not maintaining “minimum essential coverage.” For 2018, the penalty was the greater of 2.5% of household income above the filing threshold or $695 per adult.

The Tax Cuts and Jobs Act of 2017 reduced this payment to zero for tax years beginning after December 31, 2018. As a result, there is no longer a federal penalty for not having health insurance. This change rendered Form 8965 unnecessary for current and future federal tax filings.

Available Exemptions for Pre-2019 Tax Years

For anyone filing or amending a return for 2018 or a prior year, several exemption categories were available. Income-related exemptions applied if a person’s gross income was below the tax filing threshold, or if the lowest-cost coverage available was considered unaffordable based on a percentage of household income.

Hardship exemptions covered difficult life circumstances that could prevent someone from obtaining insurance. Qualifying hardships included:

• Experiencing homelessness or eviction
• Filing for bankruptcy
• Receiving a utility shut-off notice
• Suffering substantial property damage from a disaster
• Having large unpaid medical expenses
• Experiencing the death of a close family member

Exemptions were also based on membership in certain groups. Members of a federally recognized Indian tribe were exempt from the penalty. The exemption also extended to individuals in a recognized religious sect with established objections to insurance benefits, such as some Amish and Mennonite communities, and members of a recognized health care sharing ministry.

How to Complete Form 8965 for a Prior Year

Exemptions could be obtained in different ways. Some exemptions, like certain hardships, had to be granted by the Health Insurance Marketplace. Others, such as a short coverage gap or income below the filing threshold, could be claimed directly on the tax return. A third category, including membership in a federally recognized Indian tribe, could be obtained either through the Marketplace or claimed on the return.

Part I of the form is for reporting exemptions granted by the Health Insurance Marketplace. To complete this section, you must have an Exemption Certificate Number (ECN) from the Marketplace. This ECN is entered for each individual who received the exemption.

Part II is used to claim an exemption for an individual on your tax return who is not required to file because their income is below the filing threshold. This often applies to dependents. You must list the name and Social Security number of the individual who qualifies for this exemption.

Part III is for claiming most other exemptions directly on the tax return, such as for unaffordable coverage or membership in a qualifying religious sect. You must find the correct one-letter identifying code in the IRS instructions for the relevant year. This code is entered for each person for each month the exemption applies.

State-Specific Health Insurance Mandates

While the federal penalty for lacking health coverage has been eliminated, the rules are not uniform across the country. Several states have enacted their own individual health insurance mandates that operate independently of federal law. These states require their residents to maintain qualifying health coverage or pay a state-level penalty on their income tax returns.

Exemption qualifications for these state mandates can differ from the old federal rules and vary by state. These states have their own forms and procedures for claiming an exemption from their penalties. It is important for taxpayers to check the specific requirements with their state’s department of revenue or tax agency.