Calculating the Health Care Individual Mandate Penalty
The shared-responsibility payment by applicable individuals, better known as the "individual mandate" penalty for failure to have qualifying health insurance coverage, was at the heart of the litigation over the Patient Protection and Affordable Care Act of 2010, P.L. 111-148 (PPACA), that culminated in the U.S. Supreme Court's upholding the provision (National Federation of Independent Business v. Sebelius, 132 S. Ct. 2566 (U.S. 6/28/12)). As this article went to press, the mandate was scheduled to take effect Jan. 1 as stated in Sec. 5000A(a). However, the Obama administration was quoted in news reports saying that the payment would not be imposed on taxpayers who did not have coverage before April 1, noting that open enrollment on PPACRs insurance exchanges ends March 31, and coverage begins the month after enrollment. CPAs' clients may need or just be curious to know how much the payment might be, or have mistaken or oversimplified notions of it. Beyond that, tax preparers will need to familiarize themselves with information-reporting guidelines for minimum essential benefits and their implications for the individual mandate as those procedures, currently the subject of proposed regulations (REG-132455-11 and REG-136630-12), are finalized. They will no doubt also need to take the mandate into account in their client organizers and checklists for the 2014 tax year. Here is what is intended as a brief but helpful explanation. Applicable individual. The shared-responsibility payment applies to anyone who does not have minimum essential coverage with respect to any month and who is not exempt from the requirement under Sec. 5000A(d) or (e). Exempt individuals are: * Members of certain religious groups or "health care sharing ministries." * Those not lawfully present in the United States. * Those incarcerated. * Those unable to afford coverage (required annual contribution exceeds 8% of household income for the year, increased by any exclusion for a required contribution to an employer-sponsored plan made by a salary reduction arrangement). * Those with income below the return filing threshold. Generally, the filing threshold is the personal exemption amount (doubled for married taxpayers filing jointly) plus the applicable standard deduction. Therefore, the filing threshold in 2014, for taxpayers under 65 and not blind, is $10,150 for single taxpayers and $20,300 for married couples filing jointly * Members of Indian tribes, as defined in Sec. 45A(c)(6). * Those with a short coverage gap (less than three consecutive months during the year). * Those who have suffered a hardship (certified by a PPACA insurance exchange) affecting their ability to obtain coverage. See Regs. Sec. 1.5000A-3(h). Department of Health and Human Services (HHS) regulations (45 C.ER. [section]155.605(g)(1)) define hardships applicable to federally sponsored exchanges. State exchanges may follow federal guidelines or develop their own criteria. The HHS regulations state that an exchange may certify hardship where: ** An individual has experienced financial or domestic circumstances causing a significant, unexpected increase in essential expenses preventing him or her from obtaining coverage; ** Paying for coverage would cause serious deprivation of food, shelter, clothing, or other necessities; or ** An individual has experienced other circumstances that prevented him or her from obtaining coverage. Additional HHS guidance (available at tinyurl.com/kbdndmu) lists 11 specific hardship circumstances, including filing for bankruptcy in the previous six months, recently experiencing domestic violence, experiencing a natural or human caused disaster that resulted in substantial damage to the individual's property, the recent death of a close family member, substantial debt from unreimbursed medical bills in the past 24 months, and an unexpected increase in essential expenses from caring for an ill, disabled, or aging family member. …