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IRS.gov Website
Instructions for Form 8965
taxmap/instr/i8965-006.htm#en_us_publink10006661

Part II — Coverage Exemptions Claimed on Your Return for Your Household(p6)

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Use Part II to claim a coverage exemption on behalf of your tax household because your household income or your gross income is less than your filing threshold. See Filing Thresholds For Most People, later, to figure your filing threshold.
taxtip
If you aren't required to file a tax return and don't wish to file a return, your tax household is exempt from the shared responsibility payment and you don't need to file a return or do anything else to claim the coverage exemption. If your gross income is less than your filing threshold but you file a tax return for any reason, see the instructions for lines 7a and 7b next.
taxmap/instr/i8965-006.htm#en_us_publink10006662

Line 7a—Household Income Below Filing Threshold(p6)

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You can claim a coverage exemption if your household income is less than your filing threshold. To claim this coverage exemption, you must first figure your household income (see Household income, under Definitions, earlier). Then compare your household income to the filing threshold that applies to you based on your filing status. If your household income is less than your filing threshold, check the box labeled Yes.
If you qualify for this coverage exemption, everyone in your tax household is exempt for the entire year. You don't need to complete Part III.

Example 1.(p6)

Lizzie and Fitz are both under age 65. They are married and have three children, all of whom they claim as dependents on their tax return. Lizzie and Fitz file Form 1040 as married filing jointly, report $16,000 of wages, and claim the earned income credit. One of their children, Charlie, received taxable interest of $1,100. Their other two children have no income. Lizzie and Fitz were uninsured all year and do not qualify for any other coverage exemption.
To see if they qualify to claim the coverage exemption on line 7a of Form 8965, they first calculate their household income. On their Form 1040, they have no amount on line 8b and $16,000 on line 37, so their MAGI is $16,000. They look at the Filing Requirements for Children and Other Dependents chart and see that since Charlie has $1,100 in unearned income, he is required to file his own tax return. On Charlie’s Form 1040EZ, he has no entry beside line 1b and $1,100 on line 4, so his MAGI is $1,100. Their household income is $17,100 ($1,100 of Charlie’s MAGI plus Lizzie and Fitz’s $16,000). They look at the Filing Thresholds For Most People chart and see that their household income ($17,100) is less than their filing threshold ($20,600). Because Lizzie and Fitz are claiming the earned income credit, they are going to file a tax return to claim the credit, even though they are below the filing threshold. Lizzie and Fitz check the “Yes” box on line 7a and leave Part III blank.

Example 2.(p6)

The facts are the same as in Example 1 except that Charlie does not file his own tax return. Instead Lizzie and Fitz elect to report Charlie’s taxable interest on Form 8814. Because Charlie's only income was $1,100 of taxable interest, line 1a on Form 8814 is $1,100, line 1b is zero, line 4 is $1,100, and line 5 is $2,100. Because the amount on line 4 is less than the amount on line 5, they add it to the amount on line 1b for a total of $1,100 (zero on line 1b + $1,100 on line 4). They add the $1,100 from Form 8814 to their MAGI of $16,000 for household income of $17,100. Their household income is less than their filing threshold, so Lizzie and Fitz check the Yes box on line 7a and leave Part III blank.

Example 3.(p7)

The facts are the same as Example 1 except that Lizzie and Fitz are not claiming the earned income credit. They do not need to file a tax return. They and everyone in their tax household are exempt from the requirement to have minimum essential coverage or make a shared responsibility payment and need to do nothing further to claim the coverage exemption.
taxmap/instr/i8965-006.htm#en_us_publink10006663

Line 7b—Gross Income Below Filing Threshold(p7)

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You can claim a coverage exemption if your gross income is less than your filing threshold. To claim this coverage exemption, you must first figure your gross income. Then compare your gross income to the filing threshold that applies to you based on your filing status. See Filing Thresholds For Most People. If your gross income is less than your filing threshold, check the box labeled Yes.
If you qualify for this coverage exemption, everyone in your tax household is exempt for the entire year. You don't need to complete Part III.

Example 1.(p7)

Emma and George are both under age 65. They are married and have one child, whom they claim as a dependent on their tax return. Emma and George file Form 1040 as married filing jointly, report $20,000 of wages, $3,000 of tax-exempt interest, and claim the earned income credit. Emma and George figure their gross income as $20,000 (their wages) and their household income as $23,000 (Form 1040, line 8b plus Form 1040, line 37). Emma and George were uninsured all year and do not qualify for any other coverage exemption. They look at the Filing Thresholds For Most People chart and see that their household income ($23,000) is more than their filing threshold ($20,600).
Because their household income is more than their filing threshold, Emma and George can’t check the Yes box on line 7a. To see if they qualify to claim the coverage exemption on line 7b, they compare their gross income ($20,000) to their filing threshold ($20,600) and see that they can check the Yes box on line 7b. Because Emma and George are claiming the earned income credit, they are going to file a tax return to claim the credit, even though they are below the filing threshold. Emma and George check the “Yes” box on line 7b and leave Part III blank.

Example 2.(p7)

The facts are the same as Example 1 except that Emma and George are not claiming the earned income credit. They do not need to file a tax return. They and everyone in their tax household are exempt from the requirement to have minimum essential coverage or make a shared responsibility payment and need to do nothing further to claim the coverage exemption.