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Individual Mandate Exemption Fees


        The Individual Mandate Exemptions

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The penalties for not having health coverage are set to increase by fixed amounts for 2014, 2015 and 2016 and then will be adjusted for inflation in subsequent years. Fees can be calculated one of two ways — a percentage of your household income or a flat fee—and your fee will be whichever of the two amounts is higher. For the percentage method, only the amount of income above the tax filing threshold (about $10,000 for an individual) is taken into account; the maximum penalty using this method is the national average premium for a bronze level plan.

For 2014:

     • 1 percent of your yearly household income

     • $95 per person for the year ($47.50 for each child under age 18);
     maximum penalty per family using this method is $285

For 2015:

     • 2 percent of your yearly household income

     • $325 per person for the year ($162.50 for each child under age 18);
     maximum penalty per family using this method is $975

For 2016:

     • 2.5 percent of your yearly household income

     • $695 per person for the year ($347.50 for each child under age 18);
     maximum penalty per family using this method is $2,085

For 2017 and subsequent years:

     • Adjusted for inflation

One of the key components of the Affordable Care Act (ACA) is that everyone is required to obtain health coverage. If you don’t have coverage, you are not only responsible for paying all of your health care expenses out of pocket, but you will also be subject to a fee. However, in a few special situations, you may qualify for an exemption from the penalty.


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Premium Tax Credits for Low-Income Individuals


The Individual Mandate

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Eligibility for Minimum Essential Coverage for Purposes of the Premium Tax Credit


In general, an individual is not eligible for a premium tax credit if he or she is eligible for MEC (such as coverage under a government-sponsored program or an eligible employer-sponsored plan). However, eligibility for employer-sponsored coverage that is unaffordable will not disqualify a taxpayer from receiving a premium tax credit. Employer-sponsored coverage is unaffordable if the employee’s cost for self-only coverage exceeds 9.5 percent of the employee’s household income for the tax year (adjusted to 9.56 percent for plan years beginning in 2015 under Rev. Proc. 2014-37).

On Feb. 1, 2013, the IRS published additional final regulations to confirm that an employer-sponsored plan is affordable for related individuals (that is, family members) if the portion of the annual premium the employee must pay for self-only coverage does not exceed 9.5 percent of the taxpayer’s household income (adjusted to 9.56 percent for plan years beginning in 2015). Thus, the affordability determination for families is based on the cost of self-only coverage, not family coverage.

On June 26, 2013, the IRS released Notice 2013-41, which provides guidance for when an individual is treated as eligible for certain types of MEC where special circumstances exist.

     • CHIP Waiting Period— An individual subject to a waiting period before he
     or she can enroll in CHIP is not treated as eligible for CHIP and therefore
     may receive a premium tax credit during that waiting period.

     • Coverage Tied to a Certain Condition— An individual eligible for either:

             o Medicaid coverage as a result of disability or blindness

             o Medicare coverage as a result of disability or illness, is
             considered eligible for MEC under Medicaid or Medicare
             only upon a favorable determination of eligibility by the
             responsible agency. As a result, an individual with a condition
             that may make him or her eligible for Medicaid or Medicare
             may still be eligible for a premium tax credit unless and
             until the individual is determined to be eligible for
             Medicaid or Medicare.

     • Other Coverage, Including Coverage that may have a Substantial
     Premium—Individuals are considered eligible for certain types of
     MEC only if they are actually enrolled. These include:

             o Medicare part A coverage requiring payment of premiums

             o State high risk pools

             o Student health plans

             o Certain TRICARE programs, such as Young Adult and Reserve Select.

The ACA created a premium tax credit to help eligible individuals and families purchase health insurance through an Exchange. By reducing a taxpayer’s out-of-pocket premium costs, the credit is designed to make coverage through an Exchange more affordable. To be eligible for the premium tax credit, a taxpayer:

     • Must have household income for the year between 100 percent and 400
     percent of the federal poverty line (FPL) for the taxpayer’s family size

     • May not be claimed as a tax dependent of another taxpayer

     • Must file a joint return, if married

In addition, to receive the credit, a taxpayer must enroll in one or more qualified health plans through an Exchange.


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How is a Individual Mandate Penalty Enforced?


The Individual Mandate

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Starting in 2015, individuals filing a tax return for the previous tax year will indicate which members of their family (including themselves) are exempt from the individual mandate. For family members who are not exempt, the taxpayer will indicate whether they had insurance coverage. For each non-exempt family member who doesn’t have coverage, the taxpayer will owe a payment. Spouses who file a joint return are jointly liable for the penalties that apply to either or both of them. Any individual who is eligible to claim a dependent will be responsible for reporting and paying the penalty applicable to that dependent.

The IRS will generally assess and collect individual mandate penalties in the same manner as taxes. However, the ACA imposes certain limitations on the IRS’ ability to collect the penalty. As a result, it is likely that any assessable penalty under the individual mandate will be subtracted from the tax refund that the individual is owed, if any.

The Affordable Care Act (ACA) requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. This rule, which took effect in 2014, is often referred to as the “individual mandate.” Individuals may be eligible for an exemption from the penalty in certain circumstances.

On July 1, 2013, the Department of Health and Human Services (HHS) released a final rule on the individual mandate, which finalized provisions in a proposed rule issued on Feb. 1, 2013. Also, on Aug. 30, 2013, the Internal Revenue Service (IRS) issued a separate final rule on the individual mandate, finalizing provisions in their proposed rule issued on Feb. 1, 2013. These final rules generally adopt the proposed standards without significant change, including:

     • Exemptions from the individual mandate;

     • The method for calculating the penalty; and

     • Standards for designating certain coverage as constituting
        “minimum essential coverage.”

In conjunction with the final rules, HHS issued additional guidance specifically on the hardship exemption. The IRS issued Notice 2013-42 to provide transition relief for individuals who are eligible to enroll in employer-sponsored health plans with non-calendar year plan years, as well as related questions and answers for individuals.

Finally, on Jan. 27, 2014, the IRS published another set of proposed rules that supplement and clarify the earlier final rules, as well as Notice 2014-10 to provide transition relief from the individual mandate for months in 2014 in which individuals have certain limited-benefit health coverage that is not minimum essential coverage.


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Exceptions to the Individual Mandate


The Individual Mandate

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The ACA provides nine categories of individuals who are exempt from the penalty. An individual who is eligible for an exemption for any one day of a month is treated as exempt for the entire month.

     • Individuals who cannot afford coverage

     • Taxpayers with income below the filing threshold

     • Members of federally recognized Indian tribes

     • Individuals who experience a hardship

     • Individuals who experience a short gap in coverage

     • Religious conscience objectors

     • Members of a health care sharing ministry

     • Incarcerated individuals

     • Individuals not lawfully present in the U.S.

* The religious conscience exemption and most categories of the hardship exemption are available exclusively through an Exchange. Individuals must apply for these exemptions by filing an application with the Exchange.

Four categories of exemptions will be available exclusively through the tax filing process for:

     • Individuals who are not lawfully present

     • Individuals with household income below the filing threshold

     • Individuals who cannot afford coverage

     • Individuals who experience a short coverage gap

Certain subcategories of the hardship exemption will be available exclusively through the tax filing process. The exemptions for members of a health care sharing ministry, individuals who are incarcerated and members of federally recognized Indian tribes can be provided either through an Exchange or through the tax filing process.

Individuals who are denied an exemption will have the right to appeal. In addition, an applicant that no longer qualifies for an exemption but is otherwise eligible to enroll in a QHP will be eligible for a special enrollment period.

The Affordable Care Act (ACA) requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. This rule, which took effect in 2014, is often referred to as the “individual mandate.” Individuals may be eligible for an exemption from the penalty in certain circumstances.

On July 1, 2013, the Department of Health and Human Services (HHS) released a final rule on the individual mandate, which finalized provisions in a proposed rule issued on Feb. 1, 2013. Also, on Aug. 30, 2013, the Internal Revenue Service (IRS) issued a separate final rule on the individual mandate, finalizing provisions in their proposed rule issued on Feb. 1, 2013. These final rules generally adopt the proposed standards without significant change, including:

     • Exemptions from the individual mandate;

     • The method for calculating the penalty; and

     • Standards for designating certain coverage as constituting
        “minimum essential coverage.”

In conjunction with the final rules, HHS issued additional guidance specifically on the hardship exemption. The IRS issued Notice 2013-42 to provide transition relief for individuals who are eligible to enroll in employer-sponsored health plans with non-calendar year plan years, as well as related questions and answers for individuals.

Finally, on Jan. 27, 2014, the IRS published another set of proposed rules that supplement and clarify the earlier final rules, as well as Notice 2014-10 to provide transition relief from the individual mandate for months in 2014 in which individuals have certain limited-benefit health coverage that is not minimum essential coverage.


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Foreign Group Health Coverage


The Individual Mandate: Who is Liable for a Penalty?

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A proposed rule from March 17, 2014 addresses when foreign group health coverage would qualify as MEC. The proposed rule would clarify that foreign group health coverage is group health coverage that is not insured by an issuer regulated by a state and is for expatriates who are U.S. citizens or nationals residing abroad, or is for expatriates who are not U.S. citizens or nationals residing in the United States. Under the proposed rule:

     • If coverage for expatriates who are U.S. citizens or nationals who
     reside abroad
is provided by a self-insured group health plan, or is
     provided by group health insurance not regulated by a state or group
     health coverage provided by a foreign national health plan, the coverage
     is MEC for any month that the U.S. citizen or national is physically absent
     from the U.S. for at least one day of the month.

     • If an expatriate is a U.S. citizen or national and is physically present
     in the U.S. for an entire month,
the foreign group health coverage is
     MEC if the coverage provides health benefits within the U.S., and is provided
     by a self-insured group health plan, group health insurance regulated by a
     foreign government (and not by a state), or group health coverage provided
     by a foreign national health plan.

     • If the foreign group health coverage is for expatriates residing in the
     U.S. who are not citizens or nationals of the U.S,
the coverage is
     designated as MEC if the coverage provides health benefits within the U.S.,
     and is provided by a self-insured group health plan, group health insurance
     regulated by a foreign government (and not regulated by a state), or group
     health coverage provided by a foreign national health plan.

The penalty will be assessed against an individual for any month during which he or she does not maintain “minimum essential coverage” (MEC) beginning in 2014 (unless an exemption applies). The requirement to maintain MEC applies to all individuals of all ages (including children), unless that individual falls within a specific exception or is exempt. An individual is treated as having coverage for a month if he or she has coverage for any one day of that month.

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Government Programs with Limited Benefits


The Individual Mandate: Who is Liable for a Penalty?

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A number of government programs do not provide full coverage for medical expenses, and thus do not qualify as MEC (for example, Medicaid coverage for pregnant women or Medicaid programs that only cover family planning services, tuberculosis-related services or emergency medical conditions). The following additional types of Medicaid coverage do not qualify as MEC because they are not required to offer comprehensive coverage under the Medicaid rules:

     • Coverage for the medically needy (individuals with high medical expenses
     who would be eligible for Medicaid but for their income level)

     • Coverage under Section 1115 demonstration projects (experimental, pilot
     or demonstration projects that promote the objectives of the Medicaid program)

However, HHS and the Treasury may recognize certain medically-needy or Section 1115 demonstration project coverage to qualify as MEC, if the coverage is comprehensive.

TRICARE “space available care” and “line-of-duty-care” also would not qualify as MEC. Space available care is provided for certain individuals who are excluded from TRICARE coverage for health care services from private sector providers and only eligible for care if space is available in a facility for the uniformed services. Line-of-duty care is provided for certain individuals who are not on active duty and are entitled to episodic care for an injury, illness or disease incurred or aggravated in the line of duty.

However, because individuals enrolled in these types of coverage may not know at open enrollment for the 2014 plan year that they are not MEC, IRS Notice 2014-10 provides transition relief from the individual mandate in 2014 for these individuals. Notice 2014-10 provides that a taxpayer is not liable for the individual mandate penalty for months in 2014 when he or she is enrolled in:

     • Family planning services Medicaid

     • Tuberculosis-related services Medicaid

     • Pregnancy-related Medicaid

     • Emergency medical conditions Medicaid

     • Certain Section 1115 demonstration projects

     • Coverage for medically needy individuals

     • Space available care

     • Line-of-duty care

When determining whether a period without coverage qualifies as a short coverage gap, an individual will be treated as having MEC for any month in 2014 when that individual is eligible for the transition relief in Notice 2014-10.

The penalty will be assessed against an individual for any month during which he or she does not maintain “minimum essential coverage” (MEC) beginning in 2014 (unless an exemption applies). The requirement to maintain MEC applies to all individuals of all ages (including children), unless that individual falls within a specific exception or is exempt. An individual is treated as having coverage for a month if he or she has coverage for any one day of that month.

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Minimum Essential Coverage


The Individual Mandate: Who is Liable for a Penalty?

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MEC includes coverage under:

     • A government-sponsored program, such as coverage under the Medicare
     or Medicaid programs, CHIP, TRICARE and certain types of Veterans
     health coverage

     • An eligible employer-sponsored plan (including COBRA and retiree coverage),
     defined as any plan offered by an employer to an employee which is a
     governmental plan or a plan or coverage offered in the small or large
     group market within a state (a self-funded plan can also qualify as an
     eligible employer-sponsored plan)

     • A health plan purchased in the individual market

     • A grandfathered health plan

MEC also includes any additional types of coverage that are designated by HHS or when the sponsor of the coverage follows a process to be recognized as MEC. HHS has designated the following other types of coverage as MEC:

     • Self-funded student health coverage and state high risk pools for plan
     or policy years that begin on or before Dec. 31, 2014 (for plan or policy years
     that begin after Dec. 31, 2014, sponsors of self-funded student health plans
     and state high risk pools may apply to be recognized as MEC)

     • Refugee Medical Assistance supported by the Administration for Children
     and Families

     • Medicare Advantage plans

MEC excludes any coverage, whether insurance or otherwise, that consists solely of excepted benefits (as defined by HIPAA). MEC does not include specialized coverage, such as coverage only for vision or dental care, workers’ compensation, disability policies or coverage only for a specific disease or condition.

The penalty will be assessed against an individual for any month during which he or she does not maintain “minimum essential coverage” (MEC) beginning in 2014 (unless an exemption applies). The requirement to maintain MEC applies to all individuals of all ages (including children), unless that individual falls within a specific exception or is exempt. An individual is treated as having coverage for a month if he or she has coverage for any one day of that month.

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Exception for Certain U.S. Citizens Living Abroad


The Individual Mandate: Who is Liable for a Penalty?

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All U.S. citizens who do not qualify for an exemption are subject to the individual mandate, regardless of whether they live in the U.S. or abroad. However, U.S. citizens who are not physically present in the United States for at least 330 full days within a 12-month period are treated as having minimum essential coverage for that 12-month period. In addition, U.S. citizens who are bona fide residents of a foreign country (or countries) for an entire taxable year are treated as having minimum essential coverage for that year.

In general, these are individuals who qualify for a foreign earned income exclusion under section 911 of the Internal Revenue Code. Individuals may qualify for this rule even if they cannot use the exclusion for all of their foreign earned income because, for example, they are employees of the United States. Individuals that qualify for this rule will not need to take any further action to comply with the individual mandate during the months when they qualify. See Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for information on the foreign earned income exclusion.

U.S. citizens who meet neither the physical presence nor residency requirements will need to maintain minimum essential coverage, qualify for an exemption or pay a penalty for each month of the year. One exemption that may be particularly relevant to U.S. citizens living abroad for a small part of a year is the exemption for a short coverage gap, which provides that no penalty will be due for a once-per-year gap in coverage that lasts less than three months.

The penalty will be assessed against an individual for any month during which he or she does not maintain “minimum essential coverage” (MEC) beginning in 2014 (unless an exemption applies). The requirement to maintain MEC applies to all individuals of all ages (including children), unless that individual falls within a specific exception or is exempt. An individual is treated as having coverage for a month if he or she has coverage for any one day of that month.

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How Much is the Penalty?


The Individual Mandate

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The penalty for not obtaining acceptable health insurance coverage will be phased in over a three-year period, and is the greater of two amounts—the “flat dollar amount” and “percentage of income amount.” For purposes of calculating the penalty, income is the taxpayer’s household income minus the taxpayer’s exemption (or exemptions for a married couple) and standard deductions.

The penalty starts at the greater of $95 per person or 1 percent of income for 2014. The penalty increases to $325 or 2 percent of income in 2015. In 2016 and thereafter, the penalty increases to $695 or up to 2.5 percent of income.

Families will pay half the penalty amount for children, up to a family cap of three times the annual flat dollar amount.

Also, the penalty is capped at the national average of the annual bronze plan premium. IRS Rev. Proc. 2014-46 provides the 2014 national average of bronze plan premiums to be used when calculating the cap. The monthly national average bronze plan premium for 2014 is $204 per individual, and $1,020 for a family with five or more members (or, annually, $2,448 for individuals and $12,240 for a family with five or more members).

IRS Rev Proc. 2015-15 provides the 2015 national average of bronze plan premiums to be used when calculating the cap. The monthly national average bronze plan premium for 2015 is $207 per individual, and $1,035 for a family with five or more members (or, annually, $2,484 for individuals and $12,420 for a family with five or more members).

The Affordable Care Act (ACA) requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. This rule, which took effect in 2014, is often referred to as the “individual mandate.” Individuals may be eligible for an exemption from the penalty in certain circumstances.

On July 1, 2013, the Department of Health and Human Services (HHS) released a final rule on the individual mandate, which finalized provisions in a proposed rule issued on Feb. 1, 2013. Also, on Aug. 30, 2013, the Internal Revenue Service (IRS) issued a separate final rule on the individual mandate, finalizing provisions in their proposed rule issued on Feb. 1, 2013. These final rules generally adopt the proposed standards without significant change, including:

     • Exemptions from the individual mandate;

     • The method for calculating the penalty; and

     • Standards for designating certain coverage as constituting
        “minimum essential coverage.”

In conjunction with the final rules, HHS issued additional guidance specifically on the hardship exemption. The IRS issued Notice 2013-42 to provide transition relief for individuals who are eligible to enroll in employer-sponsored health plans with non-calendar year plan years, as well as related questions and answers for individuals.

Finally, on Jan. 27, 2014, the IRS published another set of proposed rules that supplement and clarify the earlier final rules, as well as Notice 2014-10 to provide transition relief from the individual mandate for months in 2014 in which individuals have certain limited-benefit health coverage that is not minimum essential coverage.


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IRS Releases Figures for Determining Individual Mandate Penalty Cap in 2015

 

Quick Facts
  • IRS Rev. Proc. 2015-15 provides the 2015 monthly national average bronze plan premium.
  • This amount serves as the cap for any penalty owed under the ACA’s individual mandate.

In 2015, the individual mandate penalty is capped at:

  • $2,484 per year for each individual; and
  • $12,420 per year for a family with five or more members.

 

The Affordable Care Act (ACA) requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. This rule, which took effect in 2014, is often referred to as the individual mandate. The penalty amount that an individual must pay is capped at the annual national average bronze plan premium.

On Jan. 16, 2015, the Internal Revenue Service (IRS) released Revenue Procedure 2015-15 (Rev. Proc. 2015-15), which provides the 2015 monthly national average premium for bronze-level plans. For 2015, the monthly national average premium for bronze-level qualified health plans (QHPs) is:

  • $207 per individual ($2,484 annually); and
  • $1,035 for a family with five or more members ($12,420 annually).

Rev. Proc. 2015-15 is effective for taxable years ending after Dec. 31, 2014.

Background

Beginning in 2014, individuals who do not obtain minimum essential coverage for one or more months will be liable for a penalty under the individual mandate (unless an exception applies). The penalty amount is calculated and paid when the individual files his or her federal income tax return for the year.

The penalty amount is the greater of two amounts: a flat dollar amount or a percentage of the individual’s income. However, the penalty amount that an individual must pay is capped at the national average bronze plan premium for the individual’s family size. Thus, for each taxable year, the penalty amount is the lesser of:

  • The sum of the monthly penalty amounts; or
  • The sum of the monthly national average bronze plan premiums for the shared responsibility family.

This cap is based on the annual national average premium for QHPs that:

  • Have a bronze level of coverage;
  • Would provide coverage for the individual’s family members who are liable for a penalty under the individual mandate; and
  • Are offered through the Exchange for that plan year.

Individual Mandate Cap in 2014

For 2014, the monthly national average premium for bronze-level QHPs was:

  • $204 per individual ($2,448 annually); and
  • $1,020 for a family with five or more members ($12,240 annually).

Methodology Used to Determine the National Average Premium Amount

Under the ACA, non-grandfathered health insurance coverage, including QHPs offered through Exchanges, can only consider the following four factors when setting individual premium rates:

  1. The rating area;
  2. Age;
  3. Tobacco use; and
  4. Family size.

Revenue Procedure 2014-46 describes the methodology used to determine the monthly national average bronze premium plan. Based on the ACA’s rating factors, the monthly national average bronze plan premium for an individual who does not obtain minimum essential coverage is determined by using a population-weighted average of the premium in each county (or county equivalent) that would be charged to a 21-year-old individual who does not use tobacco.

In determining a taxpayer’s monthly national average bronze plan premium for a family, the age-21, non-tobacco user premium described above is multiplied by the number of family members who are liable for a penalty, up to a maximum of five.

Based on these factors, the 2015 monthly national average premium for bronze-level QHPs is $207 per individual and $1,035 for a family with five or more members. This means that, annually, the individual mandate penalty amount is capped at $2,484 per year for each individual, and $12,420 per year for a family with five or more members.