The New Tax Forms – Applying for an Exemption (Part 2 of 4)

(This is the second post in a four-part series about the new tax forms. Read the first post here.)
 
As the IRS explains, “beginning in 2014, individuals must have health care coverage, have a health coverage exemption, or make a shared responsibility payment with their tax return.” Those who have been granted a coverage exemption by the Marketplace or who would like to claim an exemption on their tax return must complete IRS Form 8965, Health Coverage Exemptions, and attach it to their tax return.

Types of Coverage Exemptions

There are several different coverage exemptions from the individual mandate. Some of these are granted by the Marketplace, some are claimed when filing  your tax return, and some can be applied for either through the Marketplace or on your tax return. For those that an individual gets through the Marketplace, an Exemption Certificate Number (ECN) will be given when the exemption is confirmed. For those that are claimed when filing your taxes, each one has a code that can be entered on Form 8965 for any month the exemption applies.

Below are the exemptions listed in the instruction booklet for Form 8965.

coverage exemptions
 
Form 8965

Completing form 8965 is actually pretty easy.

In part I, the taxpayers lists all family members that have been granted an exemption by the Marketplace, along with their Exemption Certificate Number. Someone who has not yet claimed an exemption that must be granted by the Marketplace should go ahead and apply for it and enter “pending” in the ECN column.

8965-1
 
Individuals and families with incomes below the tax filing threshold are exempt from the individual shared responsibility requirement and do not need to complete Form 8965 UNLESS they choose to file a tax return. If they do, then they would claim this exemption in Part II.

8965-2
 
Part III of Form 8965 is for any exemption being claimed through the Marketplace. Using the Types of Exemptions chart, the taxpayer would find the appropriate code for his or her exemption and enter it in the boxes for any months the exemption is being claimed.

8965-3
 
That’s it – pretty easy. Someone who has minimum essential coverage and/or an exemption all year long will not pay a penalty. But if any members of the household are uninsured for one or more months during which they don’t have a coverage exemption, a penalty will apply. The instructions for Form 8965 are also used to calculate that penalty – there’s not a separate tax form for that. In the next post, we’ll take a look at how to calculate any applicable shared responsibility penalty.
 
NOTE: If you don’t yet sell individual health, you should! The individual market is growing, and brokers who are able to help individuals choose a health plan and apply for a subsidy quickly and easily without going through Healthcare.gov or a state exchange have a huge opportunity. Learn more here.

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