The IRS released final regulations on 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 (known as the “individual mandate”) (T.D. 9632). The Treasury Department also released a fact sheet discussing the final rules.
The final rules adopt the proposed regulations issued in January with a few clarifications (REG-148500-12). They also cross-refer to rules issued July 1 by the Department of Health and Human Services governing eligibility for and granting certain exemptions from the shared-responsibility payment, which include circumstances in which insurance exchanges will grant hardship exemptions from the requirement to obtain minimum essential health care coverage (78 Fed. Reg. 39494 (July 1, 2013)).
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 regulations cover the following topics:
- Maintenance of minimum essential coverage and liability for the shared-responsibility payment: Regs. Sec. 1.5000A-1 defines minimum essential coverage and liability for the shared-responsibility payment, including for dependents.
- Minimum essential coverage: Regs. Sec. 1.5000A-2 defines the different types of health plans that qualify as minimum essential coverage.
- Exempt individuals: Regs. Sec. 1.5000A-3 defines who is exempt from the payment.
- Computation of the shared-responsibility payment: Regs. Sec. 1.5000A-4 contains rules for computing the amount of the payment.
- Administration and procedure: Regs. Sec. 1.5000A-5 states when the payment is due, that liens or levies to collect the payment are prohibited, that the taxpayer is not subject to criminal penalties for nonpayment, and that the IRS has authority to offset overpayments of tax to collect the payment.
Minimum essential coverage is defined as coverage under a government-sponsored program (Medicare, Medicaid, Tricare, the Children’s Health Insurance Program, etc.), an eligible employer-sponsored plan (defined in 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 (PPACA), 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 (Regs. Sec. 1.5000A-2).
A number of suggestions that the IRS received about the proposed rules were not incorporated into the final regulations, but the IRS will be issuing further guidance or is reserving space in the regulations for that guidance. For example, a rule in the proposed regulations provided for an irrevocable election for taxpayers to use a simplified method to determine the cost of a health plan in the rating area where the taxpayer resides. In response to a request to make the election revocable, the IRS removed the election and reserved the space to offer a different rule.
The regulations apply to months beginning after Dec. 31, 2013, when the Sec. 5000A penalty first applies.