What Form 8965 (2018) Is For
IRS Form 8965 is used to report health coverage exemptions for taxpayers who lacked minimum essential health insurance coverage during 2018 under the Affordable Care Act. It helps individuals show why a shared responsibility payment should not apply when health coverage was unaffordable, unavailable, or interrupted due to circumstances such as Marketplace Coverage delays or medical expenses.
IRS Form 8965 applies to anyone filing a federal income tax return that includes household income, family size, and Social Security information for each person needing an exemption. The form allows taxpayers to document hardship exemption claims, affordability exemption eligibility, or exemptions related to membership in an Indian tribe, federally recognized tribes, or participation in a Health Care Sharing Ministry.
When You’d Use Form 8965
Form 8965 is used when a taxpayer did not have continuous health insurance coverage and needs to report an exemption for one or more months in 2018. It applies when someone faces a hardship, experiences a natural or human-caused disaster, or requires an exemption certificate number from the Health Insurance Marketplace.
A taxpayer must file the form if Marketplace Coverage was pending, if health plans exceeded the cost of health coverage considered affordable, or if advance payments of the Premium Tax Credit were misreported. Individuals may also use the form when amending a tax return due to errors involving Form 1095-A, Form 8962, or exemptions tied to the Children’s Health Insurance Program or catastrophic health coverage.
Key Rules or Details for 2018
For the 2018 tax year, the Individual Mandate still required minimum essential health coverage unless a taxpayer qualified for a valid exemption. Household income, modified adjusted gross income, and filing threshold rules determined whether someone could use an affordability exemption or avoid a tax penalty under federal income taxes.
Several rules depended on factors such as the federal poverty level, ZIP code, and the lowest cost bronze plan available through insurance marketplaces. Certain exemptions required a unique Exemption Certificate Number. In contrast, others, such as those related to the Indian Health Service, preventive services, or catastrophic health plans, could be claimed directly without submitting an exemption application.
Step-by-Step (High Level)
Step 1: Identify the reason for the exemption
The taxpayer reviews why they did not have minimum essential health insurance coverage in 2018. They confirm whether the exemption relates to affordability, a short coverage gap, or a specific hardship category.
Step 2: Gather all required information
The taxpayer collects Social Security information and household income details for everyone included in the exemption. They review Form 1095-A, tax Form 1095, or Marketplace eligibility notices to ensure accurate reporting.
Step 3: Determine whether a marketplace exemption applies
The taxpayer checks if a Marketplace exemption requires an exemption certificate number. They verify whether an application was submitted through the Health Insurance Marketplace or if an exemption can be claimed directly.
Step 4: Complete Part I, Part II, or Part III as needed
The taxpayer enters Marketplace-granted exemptions and any exemption certificate number in Part I. They complete Part II or Part III if claiming exemptions based on filing threshold rules or monthly eligibility codes.
Step 5: Review exemption codes and coverage months
The taxpayer ensures that all exemption codes match the IRS instructions for the 2018 tax year. They verify that each month without health coverage is correctly documented on the form.
Step 6: Attach Form 8965 to the tax return
The taxpayer attaches the completed Form 8965 to their original or amended tax return. They review the entire return to confirm accuracy before filing with the IRS.
Use our IRS Account Transcript Service to confirm the processing status of your amended return and maintain accurate corporate tax records.
Common Mistakes and How to Avoid Them
- Filing Form 8965 when income is below the filing threshold: Verify whether you are required to file a return before preparing Form 8965, since low-income households may already qualify for a full-year exemption.
- Selecting the wrong exemption code or missing monthly entries: Use the exemption chart in the instructions and mark the correct months to avoid IRS processing delays.
- Misreporting household income for the Affordability Exemption: Include the modified adjusted gross income of all individuals required to file to determine exemption eligibility accurately.
- Overlooking special exemptions for certain coverage types: Review guidance for Indian Health Services, CHIP, and catastrophic health coverage to ensure all applicable exemptions are claimed.
- Failing to reconcile Premium Tax Credit amounts: Compare Bronze Plan and Lowest Cost Bronze Plan information and reconcile any advance credit payments to prevent errors in affordability calculations.
What Happens After You File
After submitting Form 8965, the IRS reviews exemption details to determine whether the taxpayer owes a healthcare penalty or qualifies for complete relief. Suppose an exemption is denied or Marketplace records do not match the tax return. In that case, the IRS may send a notice requesting additional documentation, such as an eligibility notice or proof of medical costs.
If all entries are accepted, the tax return is processed normally, and no further action is required. When errors involve advance payments, cost-sharing reductions, or Bronze Plan calculations, the taxpayer may need to amend the state tax return or federal filing using guidance from tax experts or services like TurboTax Live Full Service.
FAQs
What exemptions can be claimed directly on Form 8965?
Exemptions can be claimed directly on the form without a Marketplace exemption certificate, such as affordability, short coverage gaps, financial hardship, incarceration, living abroad, and membership in an Indian tribe.
What if my Marketplace exemption was pending?
If a Marketplace exemption was pending when the return was filed, the IRS may request additional documentation to verify the exemption. If the exemption is denied, the taxpayer may amend the return and claim a different valid exemption.
How does household income affect exemption eligibility?
Household income determines eligibility for exemptions such as the Affordability Exemption and the filing threshold exemption. Modified adjusted gross income is used for this calculation.
Do I need Form 8965 for years after 2018?
No, after the Tax Cuts and Jobs Act reduced the shared responsibility payment to zero starting in 2019, Form 8965 is not required for later tax years.
What documents should I keep in case the IRS contacts me?
Taxpayers should keep Marketplace eligibility notices, exemption application responses, proof of income, medical cost documentation, and any records related to marketplace coverage.
Can I amend my return if I later discover I qualified for an exemption?
Yes, a taxpayer may file Form 1040X to correct exemption information and potentially eliminate or reduce a shared responsibility payment.
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