Form 8965 - Part II

[Black Bart]

Line 7a "Are you claiming an exemption because your household income if below the filing threshold? Yes___ No ___"

Line 7b "Are you claiming a hardship exemption because your gross income is below the filing threshold? Yes___ No___"

Can't figure out which of these to use for a married couple: Husband-$16K W-2 (no insurance)/ wife-$15K Social Security-non-taxable (has Medicare). They didn't make the $20,300 threshold and are just filing to get back W/H and some EIC). Why is the first one just an exemption and the second a "hardship" exemption? Too, the only difference I can see between "household" income (AGI + non-taxable interest, etc.) and "gross" income is that gross doesn't subtract expenses like on a C or F (and therefore would be higher than household income anyway).

Although both apply (they don't have a C or F, so "household" income and "gross" income are the same amounts), it doesn't seem like you should check two exemption boxes, so I'm thinking "yes" to 7a and "no" to 7b. . But I don't understand why there are two threshold exemptions and why one's a hardship and the other isn't?

Insights/opinions?

[Bees Knees]

The first question applies to household income for all members of the taxpayer's tax household (everyone he/she can claim as a dependent as well as taxpayer and spouse, if joint return).

The second question applies to gross income of just the taxpayer (and spouse if joint return).

If either amounts above are below the filing threshold for the taxpayer, the exemption applies. It is possible that when you add the kids part time summer jobs in with mom and dad, the combined amount could be above the filing threshold for the parents return, so question 7a would be no. So then you would move to question 7b to see if the parent's income alone is below the filing threshold. If that is true, question 7b is yes and everyone in the house, including the kids are exempt from the penalty.

[Bees Knees]

One would wonder why both questions need to be asked because it seems that question 7b takes care of the exemption, regardless of what the kid's return reports as income. Perhaps the kids are required to file returns because their income is above the filing threshold for their returns alone, even though mom and dad still claim them as dependents. Question 7a could have to do with matching their returns with mom and dad and determining why the kids don't have a penalty, even though their income is above the filing requirement.

[Koss]

Household Income

I think Bees is on the right track here, because...

The income of a dependent is not included in household income unless the dependent is required to file a return.

BMK

[New York Enrolled Agent]

One would wonder why both questions need to be asked because it seems that question 7b takes care of the exemption, regardless of what the kid's return reports as income. Perhaps the kids are required to file returns because their income is above the filing threshold for their returns alone, even though mom and dad still claim them as dependents. Question 7a could have to do with matching their returns with mom and dad and determining why the kids don't have a penalty, even though their income is above the filing requirement.

Bart

A little follow-up to Bees response. There are circumstances where either a) or b) could apply. Perhaps some numbers will help.

1. Mom & Dad have $16,000 in income, dependent child has income of $6,400 (required to file). Household income = $22,400. That is over the household threshold in 7a) but not over the gross income threshold in 7b). Use 7b).

2. Single taxpayer has only income of a capital gain of $12,000. He also has a capital loss of $10,000. Household income = $2,000. That's under the threshold in 7a). However §61(a)(3) says gross income includes gains derived from dealings in property. Since gross income is too high (that taxpayer has an obligation to file under §6012), taxpayer can't use 7b) but can use 7a).

I doubt you'll get too many taxpayers such as in example 2. But I think the IRS needed to use both lines.

[Black Bart]

I had some of the same questions you guys did regarding IRS' perspective/rationale (i.e., the "big picture") for asking both questions, but couldn't figure that part out, so was just concentrating on my little problem (by the way, there aren't any kids, so "household" and "gross" are equal in my case). Good examples from all y'all; a few questions though:

The first question applies to household income for all members of the taxpayer's tax household (everyone he/she can claim as a dependent as well as taxpayer and spouse, if joint return).

The second question applies to gross income of just the taxpayer (and spouse if joint return).

Are these directions stated in the instructions somewhere (I couldn't find them). Are you saying, in my original case above for example, that although the household and gross income are the same, they could/should only use "b" (gross)? If it's supposed to self-evident, then it's sailing right on through both my ears meeting no resistance.

1. Mom & Dad have $16,000 in income, dependent child has income of $6,400 (required to file). Household income = $22,400. That is over the household threshold in 7a) but not over the gross income threshold in 7b). Use 7b).

2. Single taxpayer has only income of a capital gain of $12,000. He also has a capital loss of $10,000. Household income = $2,000. That's under the threshold in 7a). However §61(a)(3) says gross income includes gains derived from dealings in property. Since gross income is too high (that taxpayer has an obligation to file under §6012), taxpayer can't use 7b) but can use 7a). I doubt you'll get too many taxpayers such as in example 2. But I think the IRS needed to use both lines.

You're saying, aren't you, that IRS is giving us a break by letting us use either "a" (household) or "b" (gross)? But on the other hand, if they don't have any kids for the "a" household income, then are they raising the bar by making the t/p and spouse use "b" gross (possible extra income)?

I'm going to end my goofy post by asking this about my case (never mind the big picture):
Do I check "no" for "a" because there aren't any kids in the picture (per Bees)?
And do I check "yes" for "b" (again per Bees) because it's all T/P and spouse income and no kids income?
Do you always check both boxes? Or can you leave one blank in some cases - answering neither yes nor no?

[David1980]

You're saying, aren't you, that IRS is giving us a break by letting us use either "a" (household) or "b" (gross)? But on the other hand, if they don't have any kids for the "a" household income, then are they raising the bar by making the t/p and spouse use "b" gross (possible extra income)?

http://www.law.cornell.edu/uscode/text/26/5000A

(2) Taxpayers with income below filing threshold
Any applicable individual for any month during a calendar year if the individual’s household income for the taxable year described in section 1412(b)(1)(B) of the Patient Protection and Affordable Care Act is less than the amount of gross income specified in section 6012 (a)(1) with respect to the taxpayer.

The law gave us 7a, household income below filing threshold.

(5) Hardships
Any applicable individual who for any month is determined by the Secretary of Health and Human Services under section 1311 (d)(4)(H) to have suffered a hardship with respect to the capability to obtain coverage under a qualified health plan.

It also let HHS determine hardship exemptions.

http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Filing-Threshold-Exemption-Guidance-9-18-14.pdf

One such hardship exemption (finalized at 45 CFR 155.605(g)(3)) applies to an individual who was not required to file an income tax return for such calendar year because his or her gross income was below the filing threshold, but who nevertheless filed a return,
claimed a dependent with a return filing requirement, and as a result, had household income exceeding the applicable return filing threshold.

So congress gave us 7a, and gave HHS the authority to create hardship exemptions and HHS gave us 7b. Thus why one is a hardship exemption and one is not. I don't think we can blame the IRS for 7a/7b, as much as we love to hate the IRS.

Obviously if there is no dependents filing a tax return 7a is easier to qualify for. If there are dependents and they push household income above the threshold amount 7B might work for us.

[Black Bart]

http://www.law.cornell.edu/uscode/text/26/5000A

(2) Taxpayers with income below filing threshold
Any applicable individual for any month during a calendar year if the individual’s household income for the taxable year described in section 1412(b)(1)(B) of the Patient Protection and Affordable Care Act is less than the amount of gross income specified in section 6012 (a)(1) with respect to the taxpayer.

The law gave us 7a, household income below filing threshold.

(5) Hardships
Any applicable individual who for any month is determined by the Secretary of Health and Human Services under section 1311 (d)(4)(H) to have suffered a hardship with respect to the capability to obtain coverage under a qualified health plan.

It also let HHS determine hardship exemptions.

http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Filing-Threshold-Exemption-Guidance-9-18-14.pdf

One such hardship exemption (finalized at 45 CFR 155.605(g)(3)) applies to an individual who was not required to file an income tax return for such calendar year because his or her gross income was below the filing threshold, but who nevertheless filed a return,
claimed a dependent with a return filing requirement, and as a result, had household income exceeding the applicable return filing threshold.

So congress gave us 7a, and gave HHS the authority to create hardship exemptions and HHS gave us 7b. Thus why one is a hardship exemption and one is not. I don't think we can blame the IRS for 7a/7b, as much as we love to hate the IRS.

Obviously if there is no dependents filing a tax return 7a is easier to qualify for. If there are dependents and they push household income above the threshold amount 7B might work for us.

Okay, thanks. I misunderstood Bees (didn't read it thoroughly enough) and thought he was saying my two guys had to go with "b". Instead (I think), both he and NYEA were simply saying that we have two options with different limits and can use whichever is most advantageous to us.

[New York Enrolled Agent]

http://www.law.cornell.edu/uscode/text/26/5000A

(2) Taxpayers with income below filing threshold
Any applicable individual for any month during a calendar year if the individual’s household income for the taxable year described in section 1412(b)(1)(B) of the Patient Protection and Affordable Care Act is less than the amount of gross income specified in section 6012 (a)(1) with respect to the taxpayer.

The law gave us 7a, household income below filing threshold.

(5) Hardships
Any applicable individual who for any month is determined by the Secretary of Health and Human Services under section 1311 (d)(4)(H) to have suffered a hardship with respect to the capability to obtain coverage under a qualified health plan.

It also let HHS determine hardship exemptions.

http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Filing-Threshold-Exemption-Guidance-9-18-14.pdf

One such hardship exemption (finalized at 45 CFR 155.605(g)(3)) applies to an individual who was not required to file an income tax return for such calendar year because his or her gross income was below the filing threshold, but who nevertheless filed a return,
claimed a dependent with a return filing requirement, and as a result, had household income exceeding the applicable return filing threshold.

So congress gave us 7a, and gave HHS the authority to create hardship exemptions and HHS gave us 7b. Thus why one is a hardship exemption and one is not. I don't think we can blame the IRS for 7a/7b, as much as we love to hate the IRS.

Obviously if there is no dependents filing a tax return 7a is easier to qualify for. If there are dependents and they push household income above the threshold amount 7B might work for us.

David1980 - very good informative post!!