Under the Affordable Care Act, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States. The individual shared responsibility provision, also referred to as the individual mandate, calls for each individual to have minimum essential health coverage (known as minimum essential coverage), qualify for an exemption, or make a payment when filing his or her federal income tax return.
The individual mandate applies to individuals of all ages, including children. Therefore, an adult or married couple who can claim a child or another individual as a dependent for federal income tax purposes is responsible for making the payment if the dependent does not have coverage or an exemption.
The individual mandate became effective on January 1, 2014 and applies to each month in the calendar year. The following provides some common questions and answers related to this mandate.
What counts as minimum essential coverage?
Minimum essential coverage includes the following:
· Employer-sponsored coverage, including self-insured plans, COBRA coverage and retiree coverage
· Coverage purchased in the individual market, including a qualified health plan offered by the Health Insurance Marketplace
· Medicare Part A coverage and Medicare Advantage plans
· Most Medicaid coverage
· Children's Health Insurance Program (CHIP) coverage
· Certain types of veterans health coverage administered by the Veterans Administration
· Most types of TRICARE coverage under chapter 55 of title 10 of the United States Code
· Coverage provided to Peace Corps volunteers
· Coverage under the Nonappropriated Fund Health Benefit Program
· Refugee Medical Assistance supported by the Administration for Children and Families
· Self-funded health coverage offered to students by universities for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these programs may apply to HHS to be recognized as minimum essential coverage)
· State high risk pools for plan or policy years that begin on or before Dec. 31, 2014 (for later plan or policy years, sponsors of these program may apply to HHS to be recognized as minimum essential coverage)
· Other coverage recognized by the Secretary of HHS as minimum essential coverage
Minimum essential coverage does not include coverage providing only limited benefits, such as the following:
· Coverage consisting solely of excepted benefits, such as:
· Stand-alone vision care or dental care
· Workers' compensation
· Accident or disability policies
· Medicaid providing only family planning services
· Medicaid providing only tuberculosis-related services
· Medicaid providing only coverage limited to treatment of emergency medical conditions
What are some exemptions from the requirement to obtain minimum essential coverage?
1. Religious conscience.You are a member of a religious sect that is recognized as conscientiously opposed to accepting any insurance benefits. The Social Security Administration administers the process for recognizing these sects according to the criteria in the law.
2. Health care sharing ministry.You are a member of a recognized health care sharing ministry.
3. Indian tribes.You are (1) a member of a federally recognized Indian tribe or (2) an individual eligible for services through an Indian care provider.
4. Income below the income tax return filing requirement.Your income is below the minimum threshold for filing a tax return. The requirement to file a federal tax return depends on your filing status, age and types and amounts of income.
5. Short coverage gap.You went without coverage for less than three consecutive months during the year.
6. Hardship.You have suffered a hardship that makes you unable to obtain coverage, as defined in final regulations issued by the Department of Health and Human Services.
7. Affordability.You can’t afford coverage because the minimum amount you must pay for the premiums is more than eight percent of your household income.
8. Incarceration.You are in a jail, prison, or similar penal institution or correctional facility after the disposition of charges against you.
9. Not lawfully present.You are not a U.S. citizen, a U.S. national or an alien lawfully present in the U.S.
What do I need to do if I want to be sure I have minimum essential coverage or an exemption for 2014?
The vast majority of coverage that people have today counts as minimum essential coverage. For those who do not have coverage, who anticipate discontinuing the coverage they have currently, or who want to explore whether more affordable options are available, the Health Insurance Marketplace is open in every state and the District of Columbia. The Marketplace helps individuals compare available coverage options, assess their eligibility for financial assistance and find minimum essential coverage that fits their budget.
For those seeking an exemption from the individual responsibility provision, the Marketplace is able to provide certificates of exemption for many of the exemption categories. Individuals will also be able to claim certain exemptions for 2014 when they file their federal income tax returns in 2015. Individuals who are not required to file a federal income tax return because their gross income falls below the return filing threshold do not need to take any further action to secure an exemption.
Who is Affected?
Are children subject to the individual shared responsibility provision?
Yes. Each child must have minimum essential coverage or qualify for an exemption for each month in the calendar year. Otherwise, the adult or married couple who can claim the child as a dependent for federal income tax purposes will generally owe a shared responsibility payment for the child.
Are senior citizens subject to the individual shared responsibility provision?
Yes. Senior citizens must have minimum essential coverage or qualify for an exemption for each month in a calendar year. Both Medicare Part A and Medicare Part C (also known as Medicare Advantage) qualify as minimum essential coverage.
Are all individuals living in the United States subject to the individual shared responsibility provision?
All U.S. citizens living in the United States are subject to the individual shared responsibility provision as are all permanent residents and all foreign nationals who are in the United States long enough during a calendar year to qualify as resident aliens for tax purposes. Foreign nationals who live in the United States for a short enough period that they do not become resident aliens for federal income tax purposes are not subject to the individual shared responsibility payment even though they may have to file a U.S. income tax return.
Are US citizens living abroad subject to the individual shared responsibility provision?
Yes. However, U.S. citizens who qualify for the foreign earned income exclusion are treated as having minimum essential coverage. Individuals may qualify for this rule even if they cannot use the exclusion for all of their foreign earned income. Individuals that qualify for this rule need take no further action to comply with the individual shared responsibility provision during the months when they qualify.
Are residents of the territories subject to the individual shared responsibility provision?
All bona fide residents of the United States territories are treated by law as having minimum essential coverage. They are not required to take any action to comply with the individual shared responsibility provision.
Minimum Essential Coverage
If I receive my coverage from my spouse’s employer, will I have minimum essential coverage?
Yes. Employer-sponsored coverage is generally minimum essential coverage. If an employee enrolls in employer-sponsored coverage that provides minimum value for himself and his family, the employee and all of the covered family members have minimum essential coverage.
Do my spouse and dependent children have to be covered under the same policy or plan that covers me?
No. You, your spouse and your dependent children do not have to be covered under the same policy or plan. However, you, your spouse and each dependent child for whom you may claim a personal exemption on your federal income tax return must have minimum essential coverage or qualify for an exemption, or you will owe a shared responsibility payment when you file a return.
My employer tells me that our company’s health plan is “grandfathered.” Does my employer’s plan provide minimum essential coverage?
Yes. Grandfathered group health plans provide minimum essential coverage.
I am a retiree, and I am too young to be eligible for Medicare. I receive my health coverage through a retiree plan made available by my former employer. Is the retiree plan minimum essential coverage?
Yes. Retiree health plans are generally minimum essential coverage.
I work for a local government that provides me with health coverage. Is my coverage minimum essential coverage?
Yes. Employer-sponsored coverage is minimum essential coverage regardless of whether the employer is a governmental, nonprofit or for-profit entity.
Do I have to be covered for an entire calendar month to avoid the shared responsibility payment liability for not having minimum essential coverage for that month?
No. You will be treated as having minimum essential coverage for a month as long as you have coverage for at least one day during that month.
If I change health coverage during the year and end up with a gap when I am not covered, will I owe a payment?
Individuals are treated as having minimum essential coverage for a calendar month if they have coverage for at least one day during that month. Additionally, as long as the gap in coverage is less than three months, you may qualify for an exemption and not owe a payment. See question 22 for more information on the exemption for a short coverage gap.
Exemptions
If I think I qualify for an exemption, how do I obtain it?
It depends upon the exemption for which you qualify.
· The religious conscience exemption and most hardship exemptions are available only by going to the Health Insurance Marketplace and applying for an exemption certificate. Information on obtaining these exemptions is available in final rules issued by the Department of Health and Human Services.
· The exemptions for members of federally recognized Indian tribes, members of health care sharing ministries and individuals who are incarcerated are available either by going to a Marketplace or Exchange and applying for an exemption certificate or by claiming the exemption as part of filing a federal income tax return.
· The exemptions for lack of affordable coverage, a short coverage gap, certain hardships, household income below the filing threshold and individuals who are not lawfully present in the United States may be claimed only as part of filing a federal income tax return.
What qualifies as a short coverage gap?
In general, a gap in coverage that lasts less than three months qualifies as a short coverage gap. If an individual has more than one short coverage gap during a year, the short coverage gap exemption only applies to the first gap.
If my income is so low that I am not required to file a federal income tax return, do I need to do anything special to claim an exemption from the individual shared responsibility provision?
No. If you are not required to file a federal income tax return for a year because your gross income is below your return filing threshold, you are automatically exempt from the shared responsibility provision for that year and do not need to take any further action to secure an exemption. If you are not required to file a tax return for a year but file one anyway, you will be able to claim the exemption on your tax return.
If I am exempt from the shared responsibility payment, can I still be eligible for the premium tax credit?
In many cases, yes, but it depends upon the exemption. If you are exempt because you are incarcerated or because you are not lawfully present in the United States, you are not eligible to enroll in a qualified health plan through the Marketplace and therefore cannot claim a premium tax credit. However, individuals with other types of exemptions may obtain coverage through the Marketplace and claim a premium tax credit if they otherwise qualify for the credit.
Reporting Coverage or Exemptions or Making Payments
Will I have to do something on my federal income tax return to show that I had coverage or an exemption?
The individual shared responsibility provision went into effect in 2014. You will not have to account for coverage or exemptions or to make any payments until you file your 2014 federal income tax return in 2015. Insurers are required to provide everyone that they cover each year with information that will help them demonstrate they had coverage beginning with the 2015 tax year.
What happens if I do not have minimum essential coverage or an exemption, and I cannot afford to make the shared responsibility payment when filing my tax return?
The IRS routinely works with taxpayers who owe amounts they cannot afford to pay. The law prohibits the IRS from using liens or levies to collect any individual shared responsibility payment. However, if you owe a shared responsibility payment, the IRS may offset that liability against any tax refund that may be due to you.
If you have any additional questions regarding the individual mandate, or the Affordable Care Act, please call our office. We are happy to help you.
George V. Famiglio, Jr, CPA/PFS, CFP, CFS, CGMA. Est. 1971
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