Updated October 17, 2026. Quick answer: Exception code 07 on Form 5329 is for IRA distributions made to certain unemployed individuals for health insurance premiums. Publication 590-B lists the conditions that make you one of those individuals. You enter the amount on line 2 and write 07 in the space provided.
What code 07 says
Form 5329 Part I is where the additional tax on early distributions is figured, and line 2 is where you show the part of an early distribution that is not subject to it. The instructions list each reason as a numbered exception, and health insurance premiums while unemployed is number 07. Part I itself opens by saying “You may also have to complete this part to indicate that you qualify for an exception to the additional tax on early distributions”.
The instructions describe exception 07 in one sentence: “IRA distributions made to certain unemployed individuals for health insurance premiums.” The code names IRA distributions, so it is written for money that came out of an IRA.
What Publication 590-B adds
The one line in the form instructions does not say who counts as unemployed. Publication 590-B does. It first lists the situation among the exceptions: “The distribution is for the cost of your medical insurance due to a period of unemployment.”
Its fuller rule reads: “Even if you are under age 59 1/2, you may not have to pay the 10% additional tax on distributions during the year that aren’t more than the amount you paid during the year for medical insurance for yourself, your spouse, and your dependents.”
The four conditions
Publication 590-B then says “You won’t have to pay the tax on these amounts if all of the following conditions apply.” The conditions are:
- “You lost your job.”
- “You received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job.”
- “You receive the distributions during either the year you received the unemployment compensation or the following year.”
- “You receive the distributions no later than 60 days after you have been reemployed.”
Check each of the four against your own dates and records before you enter the code.
How to claim it on Form 5329
Report the early distribution on line 1. The instructions for line 1 ask for amounts “includible in income” that you received from a qualified retirement plan, and the Roth IRA instructions on that line have their own rules. Then use line 2 for the part covered by the premiums you paid.
The instructions for line 2 begin: “Enter on line 2 the amount that you can exclude.” They continue: “In the space provided, enter the applicable exception number”. For this page the number is 07. If you have several reasons, the instructions say “If more than one exception applies, enter 99.” That case is covered on exception code 99.
Publication 590-B treats the premium amount as the ceiling: the distributions covered are those that “aren’t more than the amount you paid during the year for medical insurance”. Keep your premium records with the return. For the plan side of the same subject, see the early withdrawal penalty exceptions page.
Where it goes next
Line 2 feeds the lines below it. The form’s caption for line 3 reads “Amount subject to additional tax. Subtract line 2 from line 1”. The caption for line 4 reads “Enter 10% (0.10) of line 3. Include this amount on Schedule 2 (Form 1040), line 8”. So whatever you exclude on line 2 comes out of the amount that line 4 multiplies. The whole of Part I is walked through on the Part I lines 1 to 4 page.
If you are married and both of you must file the form, the instructions say “If both you and your spouse are required to file Form 5329, complete a separate form for each of you.” They add “Include the combined tax on Schedule 2 (Form 1040), line 8.”
Edition and line numbers
This page reads the 2025 Form 5329 and its 2025 instructions, and the 2025 returns edition of each IRS Publication it cites. They are the current files irs.gov served on 2026-10-17, for the tax year 2025 return filed in 2026. Check the tax year printed on the form you are filling in and use the line numbers and exception numbers on that year’s form, because a different year’s form can number or word them differently. For the wider picture, see Form 5329 explained and the overview of early withdrawal penalty exceptions.
Common mistakes
- Using code 07 for a plan that is not an IRA. The instructions describe it as “IRA distributions made to certain unemployed individuals for health insurance premiums.”
- Counting only some of the conditions. Publication 590-B says the tax is waived “if all of the following conditions apply.”
- Treating any unemployment as enough. Publication 590-B requires that “You received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job.”
Related: Form 5329 explained, Early withdrawal penalty exceptions, 1099-R box 7 codes, and 1099-R code 1.
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Answer againSources
- Instructions for Form 5329 (2025): https://www.irs.gov/pub/irs-pdf/i5329.pdf
- Form 5329 (2025): https://www.irs.gov/pub/irs-pdf/f5329.pdf
- Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) (for 2025 returns): https://www.irs.gov/pub/irs-pdf/p590b.pdf
Read from the IRS documents linked above on October 17, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.