IRS Issues Guidance on the ACA’s Individual Mandate

The Affordable Care Act (“ACA”) provides that all individuals, regardless of age, must maintain health insurance or health plan coverage that qualifies as “minimum essential coverage” for themselves and their tax dependents—as of January 1, 2014. 

On August 30, 2013, the IRS issued the final regulations implementing the shared responsibility provision of the ACA, more commonly known as the individual mandate.  Compliance with the individual mandate is determined on a monthly basis in each tax year. 

What is the individual mandate?
Generally, a person complies with the individual mandate if she, and her tax dependent(s), is enrolled in and maintains coverage for at least one day in any month in any of the following health plans:

    • Employer-sponsored health plan, including plans sponsored by government, non-profit and for-profit employers.  Individuals who obtain health insurance through their Union-sponsored multiemployer health and welfare fund have generally complied with the individual mandate;
    • Government health program.  Examples of these programs include, Medicare (including Medicare Advantage), Medicaid (Medi-Cal), Children’s Health Insurance Program (CHIP), and certain military and veterans health coverage; or
    • Health coverage purchased in the individual market, including a plan purchased through a health care exchange (in California, Covered California) or outside of an exchange.

Who does the mandate apply to?
The individual mandate does not apply to certain individuals, including undocumented residents, prisoners, certain religious objectors and members of federally-recognized Native American tribes. 

There are also several financial and hardship exemptions to the individual mandate, including exemptions for people who do not meet the federal tax filing threshold and for people whose health insurance options are “unaffordable.”  Generally, health insurance is unaffordable if the individual’s share of the insurance premium is more than 8% of household income.

What are the consequences of failing to meet the mandate?
An individual who does not comply with the individual mandate is subject to a “shared responsibility” penalty, which is a federal tax.  The tax is payable on an individual’s tax return. The tax for 2014 is $95, increases to $695 in 2016, and is indexed to a cost of living adjustment for 2017 and beyond. 

If an individual fails to pay the tax, the IRS may only collect the tax through an offset against future tax refunds.

For more information regarding the individual mandate and the Affordable Care Act, please contact your Trust Fund counsel.

By Ezekiel Carder | September 9, 2013

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