How is a Individual Mandate Penalty Enforced?

The Individual Mandate


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.