Drake Software blog for tax pros, covering tax, IRS news, and more

Health Care-Related Tax Responsibility

Health Care-Related Tax Responsibility

Get a Grip on Tax Season by Checking on Potential Health Care Exemptions

The Internal Revenue Service recently suggested that taxpayers consider checking their eligibility for health care-related tax exemptions. Taxpayers who plan their finances around a refund check may be better able to budget during tax season by researching their options before January 23, 2017.

First things first, taxpayers need to see if they qualify for an exemption before filling out Form 8965. Taxpayers may be able to claim an exemption if they meet one of the following criteria:

  • The least-expensive available coverage is considered unaffordable
  • The gap in coverage for the year is less than three consecutive months
  • Qualify for an approved hardship or belong to a specifically designated group

To make the process a bit easier, the IRS provides instructions for Form 8965 that include a larger list of coverage exemptions, and this IRS tool determines whether the taxpayer is eligible for an exemption or needs to submit an Individual Shared Responsibility Payment.

If the taxpayer qualifies, they will need to complete and file Form 8965 with their federal return. Keep in mind that, as of September 1, 2016, those who were incarcerated, members of Indian tribes, and members of health care sharing ministries are no longer granted exemptions by the Marketplace – except for Connecticut, where these exemptions are still applicable. That being said, these exemptions can still be claimed on a tax return.

Remember: e-filed tax returns that do not contain one of the following options will be rejected by the IRS:

  • Health care coverage
  • Coverage exemption
  • Shared responsibility payment

Paper returns might not be rejected outright, but they will take longer to process – possibly resulting in a delayed refund. If a client’s financial situation hinges on a refund check or fitting payment of a tax bill into a tight budget, they should follow the IRS’ advice: take some time before tax season to see if you qualify for health care-related exemptions.

Ryan Norton

Whether designing superheroes, penciling caricatures, or just doodling, I always knew I was going to earn some sort of art degree while in college. That was my goal before I decided to trade Edgar Degas for Edgar Allan Poe during a Freshman English class. The BA in English soon morphed into a double-major in English and Philosophy, eventually becoming an MA in English. It only makes sense that I learned of a writing opportunity for a local marketing firm while teaching a first-year college English course. Before I knew it, I was writing and editing tax-related articles for Taxing Subjects, and this has been my home since 2014.