The IRS released proposed rules for the Sec. 5000A shared-responsibility payment—the penalty or tax imposed on individual taxpayers who do not obtain minimum essential health care coverage beginning in 2014 (the controversial “individual mandate”) (REG-148500-12). The individual mandate was upheld by the Supreme Court last summer as a permissible exercise of Congress’s taxing powers under the Constitution (see News Notes, “Supreme Court: Health Care Mandate Is Constitutional as a Tax,” 43 The Tax Adviser 493 (August 2012)).
Under Sec. 5000A, starting next year, a taxpayer will be liable for the shared-responsibility payment if the taxpayer or any nonexempt individual whom the taxpayer may claim as a dependent for a tax year does not have minimum essential coverage in a month included in that tax year. Married taxpayers filing a joint return are jointly liable for the payment.
The proposed regulations cover the following topics:
- 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.
- Minimum essential coverage. Prop. Regs. Sec. 1.5000A-2 defines the different types of health plans that qualify as minimum essential coverage.
- Exempt individuals. Prop. Regs. Sec. 1.5000A-3 defines who is exempt from the payment.
- Computation of the shared-responsibility payment. Prop. Regs. Sec. 1.5000A-4 contains rules for computing the amount of the payment.
- Administration and procedure. Prop. Regs. Sec. 1.5000A-5 includes when the payment is due, the prohibition against liens or levies for nonpayment, no criminal fines, and the IRS’s authority to offset overpayments of tax to collect the payment.
Minimum essential coverage is defined in the proposed regulations as coverage under a government-sponsored program (Medicare, Medicaid, Tricare, the Children’s Health Insurance Program, etc.), an eligible employer-sponsored plan (defined in Prop. Regs. Sec. 1.5000A-2(c)), a plan in the individual market (generally insurance through a health care exchange), a health plan grandfathered under the health care acts (the Patient Protection and Affordable Care Act, P.L. 111-148, and the Health Care and Education Reconciliation Act, P.L. 111-152), or other health benefits coverage that has been recognized as minimum essential coverage by the secretary of Health and Human Services (Prop. Regs. Sec. 1.5000A-2).
Exempt individuals include members of a religious sect whose members oppose government insurance benefits. These individuals must obtain an exemption certificate (Prop. Regs. Sec. 1.5000A-3(a)). As the frequently asked questions the IRS also released explain, the Social Security Administration administers the process for recognizing these groups under the law, which is already in effect for groups who object to Social Security benefits (see the IRS’s “Questions and Answers on the Individual Shared Responsibility Provision”).
Other exempt individuals include:
- Members of health care sharing ministries, which are groups that share a common set of ethical or religious beliefs and share medical expenses among themselves (Prop. Regs. Sec. 1.5000A-3(b));
- Exempt noncitizens, meaning noncitizens, nonresident aliens, and people who are unlawfully present in the United States (Prop. Regs. Sec. 1.5000A-3(c));
- People in jail (Prop. Regs. Sec. 1.5000A-3(d));
- An individual who lacks affordable coverage (meaning the individual’s required contribution for minimum essential coverage exceeds 8% of the individual’s household income) (Prop. Regs. Sec. 1.5000A-3(e));
- Individuals whose household income is below the filing threshold in Sec. 6012(a)(1) (Prop. Regs. Sec. 1.5000A-3(f));
- Members of Indian tribes (Prop. Regs. Sec. 1.5000A-3(g));
- Individuals who obtain a hardship exemption certificate from an insurance exchange certifying that they have suffered a hardship that prevents them from obtaining coverage (Prop. Regs. Sec. 1.5000A-3(h)); and
- Individuals who were without coverage for less than three consecutive months (Prop. Regs. Sec. 1.5000A-3(j)).
The regulations are proposed to apply after Dec. 31, 2013, which is when the Sec. 5000A payment first applies. A public hearing on the proposed regulations is scheduled in Washington on May 29.
Final Regs. on Affordable Coverage Under the Premium Tax Credit
At the same time the IRS released these proposed regulations, it also released a final regulation under Sec. 36B, the health care premium tax credit, which assists lower-income individuals in buying health insurance (T.D. 9611).
The final rules use the cost of the premium for self-only coverage to determine whether coverage is affordable and whether an individual qualifies for a premium tax credit, so that the individual will qualify only if the premium for self-only coverage exceeds 9.5% of the taxpayer’s household income. The IRS rejected comments that called for using the amount a taxpayer must pay for family coverage to determine affordability.