Form 8965 Instructions for 2018 ACA Coverage Exemptions

penalty for months without qualifying health insurance. The Tax Cuts and Jobs Act reduced the penalty to $0 effective January 1, 2019, but enforcement remained in effect for 2018 returns.

Understanding Form 8965 for Tax Year 2018

Form 8965 serves as the official IRS document for claiming health coverage exemptions when you file your federal income tax return. The form consists of three distinct parts that address different exemption scenarios based on your circumstances.

Part I reports coverage exemptions granted through the Health Insurance Marketplace for individuals who received an Exemption Certificate Number. Part II addresses household-level exemptions when your household income falls below the filing threshold.

Part III allows you to claim individual coverage exemptions directly on your tax return using specific exemption codes. You must attach Form 8965 to Form 1040 when you had coverage gaps, claimed an exemption, or received Marketplace approval.

Exemption Types Available for 2018

The 2018 instructions include multiple exemption types that taxpayers can claim on their tax return using Part III. These exemptions use codes A through H and cover distinct

circumstances

• Code A applies when coverage is unaffordable because the required contribution

exceeds 8.05 percent of your household income.

• Code B applies when you have a short coverage gap during the year.
• Code C applies to U.S. citizens living abroad and certain noncitizens who meet the

required residency or presence rules.

• Code D applies when you are a member of a recognized health care sharing ministry.
• Code E applies when you are a member of a federally recognized Indian tribe or you are

eligible for services through an Indian health care provider.

• Code F applies when you were incarcerated in a jail, prison, or similar facility after the

disposition of charges.

• Code G applies to certain situations described in the instructions, including specific

affordability, Medicaid expansion, and hardship circumstances.

• Code H applies to certain months related to a birth or death that changed your tax

household during the year.

Additional exemptions require Marketplace approval through a formal application process.

Members of certain religious sects and individuals ineligible for Medicaid based on state expansion decisions must obtain an Exemption Certificate Number before claiming these exemptions.

Completing Each Section of Form 8965

Part I: Marketplace-Granted Coverage Exemptions

Part I requires you to report exemptions granted by the Health Insurance Marketplace for specific individuals in your tax household. Enter the name, Social Security number, and

Exemption Certificate Number for each person who received Marketplace approval.

Part II: Household Income Below Filing Threshold

Part II provides a streamlined exemption process when your household income falls below your applicable filing threshold. Calculate your household income by adding your modified adjusted gross income to the income of any dependents who are required to file a return. Compare this total to the filing threshold chart in the instructions. If your income qualifies, check the box on

Part II to claim the exemption for your entire tax household.

Part III: Individual Exemptions Claimed on Your Return

Part III allows you to claim exemptions for specific individuals and months using the exemption codes listed in the instructions. Complete one line for each individual claiming an exemption,

entering their name, Social Security number, and the appropriate exemption code. Mark each month when the exemption applies to that individual. If you claim multiple exemption types for the same person, use separate lines for each exemption code.

Short Coverage Gap Exemption Requirements

The short coverage gap exemption applies when you have a gap in coverage during 2018 that meets the short-gap rules described in the instructions. You can claim the exemption for a gap lasting one or two whole months. If your coverage gap reaches three months or longer, you do not qualify for the exemption. You may claim only one short coverage gap exemption per calendar year, and subsequent gaps do not qualify even if they last fewer than three months.

Relationship Between Form 8965 and Premium Tax

Credits

Form 8962 and Form 8965 serve separate functions in your tax filing process. Form 8962 reconciles premium tax credits for Marketplace coverage using information from Form 1095-A, which is sent to enrollees in qualified health plans.

Form 8965 reports coverage exemptions that may apply to months without insurance. You may need to complete both forms, but they operate independently and do not have a required filing order. Form 8965 does not perform credit reconciliation but confirms eligibility for exemptions that may affect whether you qualify for advance premium tax credits. The forms address different compliance requirements under the Affordable Care Act.

Forms Documentation and Verification

Three different forms document health insurance coverage for 2018, and each serves a distinct purpose. Form 1095-A reports Marketplace coverage and includes information about advance premium tax credits.

Form 1095-B reports coverage outside the Marketplace, including small employers, government programs like Medicaid, and insurance purchased directly from insurers. Form 1095-C reports employer-sponsored coverage from employers with fifty or more full-time employees.

Cross-check the covered and uncovered months. These forms provide the documentation you need to verify coverage status.

Penalty Calculation for Uncovered Months

For the 2018 tax year, the individual mandate penalty is determined using the higher of two required calculations. One method applies 2.5 percent of household income above the filing threshold, while the other uses a flat dollar amount for each uncovered individual.

A statutory cap limits the percentage-based calculation to the national average bronze-level premium. Liability applies only to months without minimum essential coverage and without a qualifying exemption. After accounting for all applicable exemptions, calculate the shared responsibility payment using the worksheet provided in the Form 1040 instructions.

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