The Patient Protection and Affordable Care Act (PPACA, P.L. 111-148) is an ambitious and massive overhaul of the U.S. healthcare system. It affects nearly all taxpayers, many employers, and many elements of the healthcare industry. Under the Act, the federal government, state governments, insurers, employers, and individuals are entrusted with shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States.
For individuals, the Act mandates that most individuals maintain health insurance coverage for themselves and their family members or pay a penalty known as the shared responsibility payment . This controversial mandate was upheld by the Supreme Court last summer as a constitutional exercise of Congress taxing power. Recently, the IRS issued proposed regulations and questions and answers under IRC Sec. 5000A, which provides guidance on the liability for the shared responsibility payment and clarifies the rules that exempt some taxpayers from the individual mandate to carry minimum health insurance coverage.
The proposed regulations cover the following subjects:
- Maintenance of minimum essential coverage and liability for the shared-responsibility payment. Prop. Regs. Sec. 1.5000A-1 defines minimum essential coverage and liability for the shared-responsibility payment, including for dependents. A taxpayer and/or eligible dependents must maintain minimum essential coverage in a qualifying insurance program at least one day a month for each month they are enrolled. If the taxpayer can be claimed as a dependent by another taxpayer, the dependent is not liable for the shared responsibility payment.
- Minimum essential coverage. Prop. Regs. Sec. 1.5000A-2 defines the different types of health plans that qualify as minimum essential coverage: government-sponsored programs such as Medicare, Medicaid, Tricare, the Children s Health Insurance Program, etc.; an eligible employer-sponsored plan; a plan in the individual market (generally insurance through a healthcare exchange); a health plan grandfathered under the healthcare acts; or other health benefits coverage that has been recognized as minimum essential coverage by the Secretary of Health and Human Services.
- Exempt individuals. Prop. Regs. Sec. 1.5000A-3 defines who is exempt from the payment. Many individuals are exempt from the shared responsibility payment, including some whose religious beliefs conflict with acceptance of the benefits of private or public insurance; those who do not have an affordable health insurance coverage option available (i.e., whose required contribution for minimum essentially coverage exceeds a percentage of the taxpayer’s household income 8% for 2014); those who are not citizens or nationals of the U.S. or aliens lawfully present in the U.S.; incarcerated individuals; and members of Indian tribes.
- Computation of the shared-responsibility payment. Prop. Regs. Sec. 1.5000A-4 contains rules for computing the amount of the payment. The shared responsibility payment will be assessed per taxpayer, per month. The taxpayer is also liable for a payment assessed against another person claimed as a dependent.
- Administration and procedure. Prop. Regs. Sec. 1.5000A-5 includes when the payment is due, the prohibition against liens or levies for nonpayment, the exclusion of criminal fines, and the IRS authority to offset overpayments of tax to collect the payment.
The requirement to carry minimum health coverage begins in 2014, and the penalty for not having insurance for taxpayers and their dependents will be assessed on the 2014 tax return.
If you have any questions about the information above, please contact PYA, (800) 270-9629.
WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOLLOWING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW. THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
