Recently, your health insurance company may have requested your Social Security number, as well as the Social Security numbers of your spouse and your qualifying dependents. Due to a new reporting requirement, you will need to report qualifying health coverage (referred to as “minimum essential coverage”) on your yearly income tax return. This new reporting requirement will begin for the 2015 tax year, and your social security number is required by the Internal Revenue Service (IRS) for Form 1095-B. Here are some common questions you may have regarding this process.
The IRS recently released the final forms and instructions for Section 6055 and 6056 reporting. Additionally, the IRS released Publication 5196, Understanding Employer Reporting Requirements of the Health Care Law, in order to help employers prepare for reporting in 2016.
Forms 6055 and 6056 are not required to be filed for 2014, but employers may choose to voluntarily file in 2015 for 2014 coverage using the released forms and instructions.
On January 30, 2013, the Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS) issued two sets of proposed regulations related to the individual mandate provision of the Patient Protection and Affordable Care Act (PPACA).
The individual mandate requires most individuals to have minimum essential coverage or pay a penalty beginning in 2014. The penalty is now called a “shared responsibility payment.” Some individuals may qualify for an exemption so they will not be required to have coverage or pay a penalty.
The proposed regulations confirm the individual mandate requirements and outline the process for requesting an exemption. The proposed regulations cover:
- What qualifies as minimum essential coverage
- How penalties will be determined and paid
- Who is exempt from paying the penalty
- When individuals can apply for an exemption
1. What Qualifies as Minimum Essential Coverage
An individual is considered to have minimum essential coverage for any month in which he or she is enrolled in one of the following types of coverage for at least one day:
- An employer group health plan
- An individual health insurance policy
- A government plan such as Medicare, Medicaid, Children’s Health Insurance Program (CHIP), TRICARE or veterans coverage
- Student health coverage
- Medicare Advantage plan
- State high risk pool coverage
- Coverage for non-U.S. citizens provided by another country
- Refugee medical assistance provided by the Administration for Children and Families
- Coverage for AmeriCorp volunteers
All these types of plans qualify as minimum essential coverage, and there are no additional coverage requirements that must be met.
2. How Penalties will be Determined and Paid
The first penalties will be due when individuals file their 2014 tax returns in 2015. A penalty is determined by calculating the greater amount of either a flat dollar amount or set percentage of income. The annual penalties for 2014 through 2016 are noted below. Beginning in 2017, penalties will increase based on the cost of living.
2014: Greater of $95 per adult and $47.50 per child under age 18 (maximum of $285 per family) or 1% of income over the tax-filing threshold
2015: Greater of $325 per adult and $162.50 per child under age 18 (maximum of $975 per family) or 2% over the tax-filing threshold
2016: Greater of $695 per adult and $347.50 per child under age 18 (maximum of $2,085 per family) or 2.5% over the tax-filing threshold
If the penalty applies for less than a full calendar year, the penalty will be 1/12 of the annual amount per month without coverage.
3. Who is Exempt from Paying the Penalty for Not Having Coverage
Individuals who meet the following criteria will not pay a penalty if they do not have minimum essential coverage:
- Individuals who cannot afford coverage. Coverage is considered unaffordable if an individual’s contribution toward minimum essential coverage is more than 8% of the annual household income. The monthly contributions are calculated at 1/12 the annual household income to determine if they exceed the 8%.
- Taxpayers with income below the tax filing threshold, which is the amount required to file a federal tax return
- Individuals who qualify for a hardship exemption. This exemption is available to individuals who are not eligible for Medicaid because their state chose not to expand Medicaid, or to individuals who have a personal or financial hardship that keeps them from being able to afford coverage.
- Individuals who have a gap in minimum essential coverage of less than three consecutive months in a calendar year
- Members of religious groups that object to coverage on religious principles
- Members of health care sharing ministries. These are non-profit religious organizations where members share medical costs.
- Individuals in prison
- Individuals who are not U.S. citizens
- Members of Native American tribes
U.S. citizens residing in a foreign country are typically exempt from having minimum essential coverage if they meet certain requirements, such as residing abroad for an entire calendar year. And, residents of U.S. territories (Guam, American Samoa, Northern Mariana Islands, Puerto Rico, and Virgin Islands) are automatically deemed to have minimum essential coverage.
4. When Individuals Can Apply for an Exemption
There are times when a person may request exemption. The Exchange will review the application, issue a certificate of exemption and notify the IRS. Other types of exemptions are claimed when individuals file their federal income tax returns.
- Religious and hardship exemptions are only available when applying through an Exchange.
- Individuals who cannot afford coverage, who experience short coverage gaps, who are not U.S. citizens and who have household incomes below the filing threshold may apply for an exemption through the IRS.
- Members of a health care sharing ministry, individuals in prison and members of Native American tribes may apply for an exemption through either an Exchange or through the IRS when filing a federal tax return.
Comments regarding the HHS regulations are due by March 18, 2013. Comments regarding the IRS regulations are due by May 2, 2013 and a public hearing is scheduled for May 29, 2013.
For more details:
The Centers for Medicare and Medicaid Services (CMS) has an online Fact Sheet.
Thank you to CIGNA for the help with this information!
On September 8, 2011, the U.S. Court of Appeals for the 4th Circuit in Richmond, Virginia issued rulings on two appeals. They dismissed lawsuits by the State of Virginia and Liberty University that challenged the constitutionality of the Patient Protection and Affordable Care Act’s (PPACA) individual mandate.
Both cases were dismissed on procedural grounds, so the court did not consider the constitutional challenges to the individual mandate in the PPACA. So don’t believe what you hear that the courts ruled on the issue of constitutionality in these cases.
In the State of Virginia case, the court ruled that the state did not have the legal right to challenge the constitutionality of the individual mandate. Virginia was challenging the individual mandate on the grounds that Virginia has a state law that individuals cannot be forced to buy health insurance.
In the Liberty University case, the court ruled that a federal tax law prevented them from considering the case because the mandate imposes a tax that has not yet been collected.
In June, the 6th Circuit Court of Appeals in Cincinnati upheld the constitutionality of the individual mandate. In August, the 11th Circuit Court of Appeals in Atlanta ruled it unconstitutional. This issue is expected to eventually be decided by the Supreme Court.