[Federal Register Volume 78, Number 169 (Friday, August 30, 2013)]
[Rules and Regulations]
[Pages 53646-53664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-21157]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9632]
RIN 1545-BL36
Shared Responsibility Payment for Not Maintaining Minimum
Essential Coverage
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations on the requirement to
maintain minimum essential coverage enacted by the Patient Protection
and Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010, as amended by the TRICARE Affirmation Act
and Public Law 111-173. These final regulations provide guidance to
individual taxpayers on the liability under section 5000A of the
Internal Revenue Code for the shared responsibility payment for not
maintaining minimum essential coverage and largely finalize the rules
in the notice of proposed rulemaking published in the Federal Register
on February 1, 2013.
DATES: Effective date: These regulations are effective on August 30,
2013.
Applicability date: For date of applicability, see Sec. 1.5000A-
5(c).
FOR FURTHER INFORMATION CONTACT: Sue-Jean Kim or John B. Lovelace at
(202) 622-4960 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these regulations has
been reviewed and approved by the Office of Management and Budget in
accordance with the Paperwork and Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545-0074. The collection of information
in these final regulations is in Sec. 1.5000A-3 and Sec. 1.5000A-4.
The information is necessary to determine whether the shared
responsibility payment provision applies to a taxpayer, and, if it
applies, the amount of the penalty. The likely respondents are
individuals required to file Federal income tax returns under section
6012(a)(1).
Estimated total annual reporting burden: 7,500,000 hours.
Estimated annual burden hours per respondent varies from .1 to .5
hours, depending on individual circumstances, with an estimated average
of .21 hours.
Estimated number of respondents: 36,000,000.
Estimated frequency of responses: Annually.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number assigned by the Office of
Management and Budget.
Book or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by section 6103.
Background
This document amends the Income Tax Regulations (26 CFR part 1) by
adding final regulations under section 5000A on the individual shared
responsibility provision. Section 5000A was enacted by the Patient
Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119
(2010)), and the Health Care and Education Reconciliation Act of 2010,
Public Law 111-152 (124 Stat. 1029 (2010)) (collectively, the
Affordable Care Act). On February 1, 2013, a notice of proposed
rulemaking (REG-148500-12) was published in the Federal Register (78 FR
7314).
Written comments responding to the notice of proposed rulemaking of
February 1, 2013, were received. The comments are available for public
inspection at www.regulations.gov or on request. A public hearing was
held on May 29, 2013. After considering all the comments, the proposed
regulations are adopted as revised by this Treasury decision. The
comments and revisions are discussed in the preamble.
In related rulemaking, on July 1, 2013, the Department of Health
and Human Services (HHS) promulgated final regulations implementing
certain functions of the Affordable Insurance Exchanges (Exchanges) to
determine eligibility for and grant certain exemptions from the shared
responsibility payment under section 5000A, and implementing the
responsibilities of the Secretary of HHS, in coordination with the
Secretary of the Treasury, to designate other health benefits coverage
as minimum essential coverage under section 5000A(f)(1)(E). Patient
Protection and Affordable Care Act: Exchange Functions: Eligibility for
Exemptions; Miscellaneous Minimum Essential Coverage Provisions, 78 FR
39494 (codified at 45 CFR parts 155 and 156) (the HHS MEC regulations).
The HHS MEC regulations provide, among other things, eligibility
standards for the hardship exemption, setting forth both general and
specific descriptions of the circumstances in which an Exchange will
grant a hardship exemption certification as well as those in which a
hardship exemption may be claimed on a Federal income tax return. The
HHS MEC regulations also designate certain coverage as minimum
essential coverage and outline substantive and procedural requirements
for other types of coverage to be recognized as minimum essential
coverage.
Summary of Comments and Explanation of Revisions
I. Maintenance of Minimum Essential Coverage
A. Coverage for a Month
The proposed regulations provide that, for any calendar month, an
individual has minimum essential coverage if the individual is enrolled
in and entitled to receive benefits under a program or plan that is
minimum essential coverage for at least one day during the month.
A commentator recommended that an individual be covered for a month
if the individual is enrolled in and entitled to receive benefits under
a plan or program identified as minimum essential coverage for a
majority of the days in the month. The commentator asserted that
allowing one day of enrollment in a month to satisfy the coverage
requirement would permit individuals to obtain minimum essential
coverage for only one day and then forgo it for the rest of the month
without any adverse consequence under section 5000A.
The Treasury Department and the IRS considered a rule requiring
coverage for a majority of days in a month but chose the one-day rule
because it provides administrative convenience for both taxpayers and
the IRS. Without the one-day rule, taxpayers and the IRS would need to
determine the number of days each person in a shared responsibility
[[Page 53647]]
family is covered in each month of a taxable year. Accordingly, the
final regulations do not adopt this recommendation. The Treasury
Department and the IRS will reconsider this rule if future developments
indicate that the rule is being abused, for example, if individuals
obtain coverage for a single day in a month over the course of several
months in a year.
A commentator requested that the final regulations provide that an
individual who has submitted an application for Medicaid but is
awaiting approval for enrollment have minimum essential coverage while
the application is pending approval. In general, Medicaid coverage is
granted retroactively to the date the application is filed. Section
5000A(a) requires that an individual have minimum essential coverage
for a month. If retroactive coverage is granted, an applicant has
minimum essential coverage. If the application is denied, the applicant
does not have minimum essential coverage. Accordingly, the final
regulations do not adopt this recommendation. However, an individual
without coverage may be eligible for an exemption, such as a short
coverage gap exemption. See Sec. 1.5000A-3 and 45 CFR 155.605.
B. Liability for Shared Responsibility Payment
1. Liability for Dependents
In general, section 151 allows individual taxpayers a deduction for
personal exemptions for the taxpayer, the taxpayer's spouse, and any
dependents (as defined in section 152) of the taxpayer for the taxable
year. Section 152 defines dependent to include a taxpayer's qualifying
children and qualifying relatives. Although a section 151 deduction is
allowable to a taxpayer for the taxpayer's dependents (as defined in
section 152), a deduction is allowed to a taxpayer under section 151
only if the taxpayer properly claims the dependent. Consistent with
section 5000A(b)(3), the proposed regulations provide that a taxpayer
is liable for the shared responsibility payment imposed for any
individual for a month in a taxable year for which the individual is
the taxpayer's dependent (as defined in section 152) for that taxable
year. Whether the taxpayer actually claims the individual as a
dependent for the taxable year does not affect the taxpayer's liability
for the shared responsibility payment for the individual.
Several commentators recommended modifications to the section 5000A
rule addressing liability for dependents. Some commentators recommended
that a taxpayer's liability for the shared responsibility payment be
limited to individuals eligible for the same minimum essential coverage
for which the taxpayer is eligible. The commentators stated that many
taxpayers are unable to enroll their qualifying children in their
employer-provided plans. Other commentators recommended that a
taxpayer's liability under section 5000A extend solely to those
dependents who meet the requirements to be a qualifying child under
section 152, so that a taxpayer's qualifying relatives would be
disregarded. In addition, commentators requested that section 5000A
liability extend only to those dependents who are actually claimed by
the taxpayer. They stated that the complexity in identifying a
potential dependent before the taxable year begins, particularly a
qualifying relative, would prevent them from making informed coverage
decisions. The commentators claimed that, unless the rule is revised,
those taxpayers may unexpectedly be liable for shared responsibility
payments for dependents for whom a deduction under section 151 is not
claimed.
Section 5000A(b)(3) provides that a taxpayer is liable for the
shared responsibility payment for an individual without minimum
essential coverage if the individual is the taxpayer's dependent as
defined in section 152. While the definition of family size in section
5000A(c)(4)(A) refers to dependents for whom a taxpayer claims a
deduction under section 151, section 5000A(b)(3) refers to section 152,
and section 152 defines dependent based on status as a qualifying child
or qualifying relative. Accordingly, the final regulations retain the
rule imposing liability on the taxpayer who may claim an individual as
a dependent.
Other commentators recommended that a non-custodial parent who must
provide the health care of a child under a separation agreement,
divorce decree, court order, or other similar legal obligation and who
fails to provide that health care be liable for the shared
responsibility payment attributable to that child even if the child is
the custodial parent's dependent under section 152.
Section 5000A places liability for a dependent's lack of minimum
essential coverage on the taxpayer who may claim the individual as a
dependent. Section 5000A does not provide that this liability may be
assigned to another taxpayer, even if the other taxpayer has a legal
obligation to provide the child's health care. Accordingly, the final
regulations do not adopt this recommendation. However, HHS has
addressed the situation described in the comments in recently issued
guidance, permitting Exchanges to grant a hardship exemption under 45
CFR 155.605(g)(1) to the custodial parent for a child in this situation
if the child is ineligible for coverage under Medicaid or the
Children's Health Insurance Program (CHIP). See HHS Center for Consumer
Information & Insurance Oversight, Guidance on Hardship Exemption
Criteria and Special Enrollment Periods (June 26, 2013).
2. Special Rule for Adopted Children
The proposed regulations provide special rules for determining
liability for the shared responsibility payment attributable to
children adopted or placed in foster care during a taxable year. If a
taxpayer legally adopts a child and is entitled to claim the child as a
dependent for the taxable year when the adoption occurs, the taxpayer
is not liable for a shared responsibility payment attributable to the
child for the month of the adoption and any preceding month.
Conversely, if a taxpayer who is entitled to claim a child as a
dependent for the taxable year places the child for adoption during the
year, the taxpayer is not liable for a shared responsibility payment
attributable to the child for the month of the adoption and any
following month.
Similar to the comment on a custodial parent's liability,
commentators recommended that a taxpayer's liability for shared
responsibility payment for an adopted child be based on the state law
assigning responsibility for the child's health care, not when a child
is adopted or placed for foster care.
As explained previously in section I.B.1. of this preamble, section
5000A(b)(3) provides that a taxpayer is liable for the shared
responsibility payment for an individual without minimum essential
coverage if the individual is the taxpayer's dependent as defined in
section 152. Determining when a taxpayer is liable for an adopted
child's health care under numerous and varying state laws would
introduce considerable administrative difficulty and uncertainty into
the implementation and administration of section 5000A. Accordingly,
the final regulations do not modify the rule for determining liability
for the shared responsibility payment attributable to children adopted
or placed in foster care during a taxable year.
[[Page 53648]]
C. Definitions of Terms
1. Insurance-related Terms
Section 5000A(f)(5) provides that any term used in section 5000A
that is also used in Title I of the Affordable Care Act has the same
meaning as when used in that Title. To provide additional guidance and
clarity, the final regulations specifically identify the terms used in
section 5000A that also are used in Title I of the Affordable Care Act.
The additional terms defined include health insurance coverage,
individual health insurance coverage, individual market, and state.
2. Household Income
Section 5000A(c)(4)(B) provides that the term household income
means the modified adjusted gross income of the taxpayer plus the
modified adjusted gross income of all members of the taxpayer's family
required to file a tax return under section 1 for the taxable year. The
proposed regulations provide that the determination of whether a family
member is required to file a return is made without regard to section
1(g)(7). Under section 1(g)(7), a parent may, if certain requirements
are met, elect to include in the parent's gross income, the gross
income of his or her child. If the parent makes the election, the child
is treated as having no gross income for the taxable year. The final
regulations remove ``without regard to section 1(g)(7).'' The proposed
regulations' use of the phrase ``without regard to section 1(g)(7)''
implies that the child's gross income is included in both the parent's
adjusted gross income and the child's adjusted gross income in
determining household income. The final regulations remove the phrase
to clarify that if a parent makes an election under section 1(g)(7),
household income includes the child's gross income included on the
parent's return and the child is treated as having no gross income.
II. Minimum Essential Coverage
A. Government-sponsored Programs
1. Medicaid Coverage for Pregnant Women
The proposed regulations exclude Medicaid coverage for pregnant
women under section 1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) of the
Social Security Act (42 U.S.C. 1396a(a)(10)(A)(i)(IV),
(a)(10)(A)(ii)(IX)) (``pregnancy-related Medicaid'') from government-
sponsored programs constituting minimum essential coverage. Some
commentators commended this treatment of pregnancy-related Medicaid.
Other commentators expressed concern that women who have pregnancy-
related Medicaid and who do not have any form of minimum essential
coverage would, under the proposed regulations, be subject to a shared
responsibility payment. The commentators recommended that pregnancy-
related Medicaid be considered minimum essential coverage solely for
section 5000A (and not section 36B). In the alternative, they
recommended that women enrolled in pregnancy-related Medicaid who are
not also enrolled in services providing minimum essential coverage be
granted a hardship exemption from the shared responsibility payment.
The final regulations do not adopt the recommendation to treat
pregnancy-related Medicaid as minimum essential coverage solely for
section 5000A. As explained in the preamble to the proposed
regulations, states have the option to provide pregnant women with full
Medicaid coverage as pregnancy-related Medicaid. Some states adopt this
option. Other states do not provide full Medicaid coverage as
pregnancy-related Medicaid. The final regulations continue to provide
that pregnancy-related Medicaid is not minimum essential coverage.
In addition, the final regulations do not adopt the recommendation
that women with pregnancy-related Medicaid be granted a hardship
exemption because rules regarding eligibility for the hardship
exemption fall under the jurisdiction of HHS. See section 5000A(e)(5).
However, individuals who are eligible for pregnancy-related
Medicaid may not know at open enrollment for the 2014 coverage year
that such coverage is not minimum essential coverage. Accordingly, the
Treasury Department and the IRS anticipate issuing guidance providing
that women covered with pregnancy-related Medicaid for a month in 2014
will not be liable for the shared responsibility payment for that
month.
2. Section 1115 Demonstration Projects
Section 1115 of the Social Security Act (42 U.S.C. 1315) authorizes
the Secretary of HHS to approve experimental, pilot, or demonstration
projects that promote the objectives of the Medicaid program (Section
1115 demonstration projects). These projects give states flexibility to
test new or existing approaches to financing and delivering Medicaid.
Some Section 1115 demonstration projects provide full Medicaid
benefits, while others provide a specific and narrow set of benefits
similar to the optional coverage of family planning services under
section 1902(a)(10)(A)(ii)(XXI) of the Social Security Act (42 U.S.C.
1396a(a)(10)(A)(ii)(XXI)) or the optional coverage of tuberculosis-
related services under section 1902(a)(10)(A)(ii)(XII) of the Social
Security Act (42 U.S.C. 1396a(a)(10)(A)(ii)(XII)).
The proposed regulations do not specifically address whether
Section 1115 demonstration projects constitute Medicaid coverage under
Title XIX of the Social Security Act for purposes of section 5000A. A
number of commentators recommended against considering as minimum
essential coverage Section 1115 demonstration projects that provide a
specific and narrow set of benefits.
The final regulations reserve on addressing the status of Section
1115 demonstration projects as minimum essential coverage and,
accordingly, do not address the commentators' recommendation that a
specific and narrow set of benefits provided under a Section 1115
demonstration project be excluded from the definition of minimum
essential coverage. It is anticipated that future regulations that will
be effective starting January 1, 2014 will provide that coverage
authorized under a Section 1115 demonstration project is not
government-sponsored minimum essential coverage. However, certain
coverage may be recognized as minimum essential coverage by the
Secretary of HHS, in consultation with the Secretary of the Treasury,
under section 5000A(f)(1)(E).
Finally, it is anticipated that to the extent future guidance
excludes benefits provided under certain Section 1115 demonstration
projects from minimum essential coverage, the guidance also will
provide that individuals who are enrolled in a Section 1115
demonstration project that is not minimum essential coverage for a
month in 2014 will not be liable for the shared responsibility payment
for that month.
3. Medicaid Premium Assistance Programs
The proposed regulations do not specifically address whether and to
what extent Medicaid premium assistance programs are minimum essential
coverage. Commentators recommended that, to preserve affected Medicaid
beneficiaries' ability to receive the premium tax credit under section
36B, Medicaid premium assistance programs, which are intended to
supplement comprehensive coverage, be excluded from the definition of
minimum essential coverage. Commentators referred to, in particular,
the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) state plan
option
[[Page 53649]]
(commonly referred to as the ``Katie Beckett option''), coverage under
an optional Medicaid coverage group authorized by the Family
Opportunity Act of 2006 (FOA), home and community based services
waivers, and ``Katie Beckett'' waivers.
Medicaid premium assistance programs function as a service delivery
mechanism for benefits covered under the Medicaid program and do not
solely supplement a private health insurance plan. In general, Medicaid
premium assistance programs are provided under the authority of
sections 1905, 1906, and 1906A of the Social Security Act (42 U.S.C.
1396d, 1396e, and 1396e-1) to individuals described in section 1902 of
the Social Security Act (42 U.S.C. 1396a) who are eligible for full
Medicaid benefits.
Under section 1906 or 1906A of the Social Security Act, states may
use Medicaid funds to pay premiums and cost sharing incurred by
Medicaid-eligible individuals to enroll in employer-sponsored coverage
if it is cost-effective for the state to do so (as compared to the cost
of providing covered services through a standard service delivery
mechanism, such as fee-for-service or per-patient payments to a managed
care organization). States exercising this option must provide ``wrap
around'' coverage to ensure individuals can access benefits covered
under the state's Medicaid program that are not covered under the
employer-sponsored insurance. Authority for states to create similar
premium assistance programs for individuals to enroll in private
coverage in the individual market is provided in regulations under the
authority of section 1905(a)(29) of the Social Security Act published
by HHS on July 15, 2013, at 42 CFR 435.1015. Individuals enrolled in
the premium assistance programs are eligible for full Medicaid
benefits. Accordingly, the final regulations do not adopt the
commentators' recommendation. Instead, coverage under a Medicaid
premium assistance program under the authority of section 1905, 1906,
or 1906A of the Social Security Act to individuals described in section
1902 is minimum essential coverage.
Section 134(a) of TEFRA (Pub. L. 97-248) added section 1902(e)(3)
of the Social Security Act (42 U.S.C. 1396a(e)(3)), under which states
may provide Medicaid to a disabled child who requires an institutional
level of care (such as that provided in a nursing facility) without
regard to the income of the child's parent(s). A child eligible under
this option is eligible for full Medicaid benefits. Enrollment of the
child in private health insurance is not required as a condition of
eligibility under the TEFRA option. Whenever a Medicaid beneficiary is
enrolled in other coverage, Medicaid serves as the secondary payer.
Thus, if a child enrolled in Medicaid under this option also has other
coverage, Medicaid will serve as the secondary payer, and in that sense
will wrap around the child's private insurance coverage. Because an
eligible child receives full Medicaid benefits, the coverage provided
is minimum essential coverage.
Sections 6062(a)(1)(A)(iii) and 6062(a)(1)(B) of FOA (Pub. L. 109-
171) added sections 1902(a)(10)(A)(ii)(XIX) and 1902(cc) of the Social
Security Act, under which states may provide Medicaid to disabled
children who are not otherwise eligible for Medicaid because their
income is too high. Children eligible for Medicaid under this option
are entitled to the full Medicaid benefits provided to all other
children enrolled in Medicaid. However, under section 1902(cc)(2)(A) of
the Social Security Act, if the child's parents have access to
employer-sponsored coverage in which the child can enroll and the
employer pays at least 50 percent of the annual premium for coverage of
the child under the employer plan, the family is required to enroll the
child in the employer-sponsored coverage, and Medicaid will wrap around
that coverage, providing services not covered under the employer plan.
If the parents do not have access to employer-sponsored coverage for
the child or if the employer does not contribute at least the minimum
amount required, the family is not required to enroll the child in the
coverage, and the Medicaid program will cover all Medicaid benefits. In
either situation, the child is eligible for all Medicaid benefits.
Therefore, coverage under this option is minimum essential coverage.
In addition, under Section 1915(c) of the Social Security Act (42.
U.S.C. 1396n(c)) states have the authority to provide home and
community based services to certain individuals covered under the
Medicaid state plan in addition to the full Medicaid benefit package.
Because these individuals receive comprehensive Medicaid benefits,
coverage under a home and community based services waiver authorized
under section 1915(c) of the Social Security Act is minimum essential
coverage.
The treatment of Medicaid coverage provided through a ``Katie
Beckett'' waiver referred to by the commentators is addressed in
section II.A.2. of this preamble, discussing Section 1115 demonstration
projects.
4. Medicaid for the Medically Needy
The Social Security Act provides states with flexibility to extend
Medicaid eligibility to individuals with high medical expenses who
would otherwise be eligible for Medicaid but for their income level
(medically needy individuals). See section 1902(a)(10)(C) of the Social
Security Act (42 U.S.C. 1396a(a)(10)(C)) and 42 CFR 435.300 and
following (Subpart D). Over half of the states have opted to provide
coverage to medically needy individuals. In general, individuals whose
income is in excess of the maximum allowed for Medicaid eligibility but
who are otherwise eligible for Medicaid may ``spend down'' their
income, based on incurred medical expenses, and thereby become eligible
for the benefits provided for medically needy individuals in the state.
States providing coverage to medically needy individuals must establish
a ``budget period'' of between one and six months. Eligibility for
coverage as a medically needy individual, which must be determined each
budget period, is provided only after an individual incurs sufficient
medical expenses to ``spend down'' to the qualifying income level.
Thus, depending on an individual's medical needs and the options
exercised by the state program, eligibility may be assessed as
frequently as every month, and an individual may move in and out of
Medicaid coverage multiple times in a year. States are permitted, and
some have adopted the option, to offer benefits to the medically needy
that are more limited than the benefits generally provided to Medicaid
beneficiaries.
Commentators requested excluding Medicaid coverage provided to
medically needy individuals from the definition of minimum essential
coverage because the benefits available may be limited. In addition,
treating Medicaid coverage for the medically needy as minimum essential
coverage can lead those individuals to experience multiple changes in
premium tax credit eligibility throughout a year, creating
administrative complexity.
The final regulations reserve on whether Medicaid coverage provided
to a medically needy individual is minimum essential coverage. It is
anticipated that future regulations that will be effective starting in
2014 will provide that Medicaid coverage provided to a medically needy
individual is not government-sponsored minimum essential coverage.
However, certain coverage of this type may be recognized as minimum
essential coverage by the HHS Secretary, in
[[Page 53650]]
consultation with the Treasury Secretary, under section 5000A(f)(1)(E).
To the extent that future guidance excludes certain Medicaid
coverage provided to medically needy individuals from the definition of
minimum essential coverage, it is anticipated that the guidance also
will provide that individuals receiving Medicaid coverage provided to
medically needy individuals for a month in 2014 will not be liable for
the shared responsibility payment for that month.
5. TRICARE
In accordance with section 5000A(f)(1)(A)(v), the proposed
regulations provide that minimum essential coverage under government-
sponsored programs includes medical coverage under chapter 55 of Title
10, U.S.C., including coverage under the TRICARE program. However,
after publishing the proposed regulations, the Treasury Department and
the IRS identified two programs under chapter 55 of Title 10, U.S.C.,
as providing benefits and services that are limited either in
availability or in scope: (1) The program providing care limited to the
space available in a facility for the uniformed services for
individuals excluded from TRICARE coverage under section 1079(a),
1086(c)(1), or 1086(d)(1) of Title 10, U.S.C.; and (2) the program for
individuals not on active duty for an injury, illness, or disease,
incurred or aggravated in the line of duty under sections 1074a and
1074b of Title 10, U.S.C.
The proposed regulations exclude certain government-provided health
care programs from the definition of minimum essential coverage because
they do not provide a comprehensive level of benefits. Similarly,
certain limited benefit TRICARE programs do not provide a comprehensive
level of benefits. It is anticipated that future regulations that will
be effective starting in 2014 will provide that coverage under a
limited benefit TRICARE program is not minimum essential coverage.
However, the final regulations reserve on the status of these programs
as minimum essential coverage.
It is anticipated that if future guidance excludes the limited-
availability TRICARE program under section 1079(a), 1086(c)(1), or
1086(d)(1) of Title 10, U.S.C., and the limited-scope line-of-duty
TRICARE program under sections 1074a and 1074b of Title 10, U.S.C.,
from the definition of minimum essential coverage, the guidance also
will provide that individuals enrolled in either TRICARE program for
any month in 2014 will not be liable for a shared responsibility
payment for that month.
B. Eligible Employer-Sponsored Coverage
1. Self-Insured Group Health Plans
The preamble to the proposed regulations explains that a self-
insured group health plan is an eligible employer-sponsored plan.
Several commentators requested additional clarification concerning the
treatment of a self-insured group health plan because these plans are
not offered in a large or small group market within a state. The rule
in the proposed regulations is revised to clarify that a self-insured
group health plan is an eligible employer-sponsored plan, regardless of
whether the plan could be offered in the large or small group market in
a state.
2. Arrangements To Provide Employer-Subsidized Coverage Under Plans in
the Individual Market
The proposed regulations do not specifically address arrangements
in which an employer provides subsidies or funds a pre-tax arrangement
for employees to use to obtain coverage under plans offered in the
individual market (as defined in section 5000A(f)(1)(C)). The Treasury
Department and the IRS received several comments on arrangements of
this type. One commentator suggested that certain arrangements of this
type be treated as eligible employer-sponsored plans, arguing that
treating these arrangements as eligible employer-sponsored plans would
increase flexibility for employers and employees in satisfying their
respective shared responsibility requirements.
The final regulations do not specifically address these
arrangements. It is anticipated that future guidance will address the
application of section 5000A and the ACA's insurance market reforms to
these types of arrangements.
3. Former Employees
The proposed regulations provide that the term employee includes
former employees and, as a result, treat coverage provided by an
employer to former employees as coverage under an eligible employer-
sponsored plan. Commentators noted that retiree coverage may be unlike
coverage offered to current employees in terms of cost, scope of
benefits, and enrollment opportunities and, therefore, should be
treated differently from other employer-provided coverage.
Employer-sponsored group health plans offered to former employees
are treated similarly for purposes of the Public Health Service Act,
the Employee Retirement Income Security Act, and other provisions of
the Code. Therefore, the final regulations do not adopt this
suggestion, and retiree coverage under a group health plan is minimum
essential coverage. However, the final regulations provide that, for
the lack of affordable coverage exemption, an individual will not be
eligible for retiree coverage unless the individual enrolls. Therefore,
an individual who is eligible for retiree coverage but does not enroll
disregards that eligibility in determining qualification for the lack
of affordable coverage exemption.
4. Plans Offered on Behalf of Employers
The Treasury Department and the IRS received comments asking
whether medical coverage offered to employees by an organization acting
on behalf of an employer qualifies as an eligible employer-sponsored
plan. For example, commentators asked whether a multiemployer plan or a
single employer collectively-bargained plan is an eligible employer-
sponsored plan for the employees covered by the collective bargaining
arrangement and eligible to participate in the plan. In addition,
commentators asked whether a plan offered to an employer's employees by
a third party, such as a professional employer organization or leasing
company, is an eligible employer-sponsored plan for the employees
eligible to participate in the plan. The final regulations are revised
to provide that a plan offered by an employer to an employee includes a
plan offered to an employee on behalf of an employer. No inference is
intended from this treatment that the third party is the employer for
this or any other provision of the Code or related laws.
5. Government-sponsored Programs That are Eligible Employer-sponsored
Plans
The proposed regulations provide that a government-sponsored
program (as described in Sec. 1.5000A-2(b)(2) of the proposed
regulations) is not an eligible employer-sponsored plan. However, some
individuals are eligible for minimum essential coverage under
government-sponsored plans by reason of employment with the United
States government. For example, the Nonappropriated Fund Health
Benefits Program of the Department of Defense, established under
section 349 of the National Defense Authorization Act for Fiscal Year
1995 (Pub. L. 103-337; 10 U.S.C. 1587 note), is offered by an
instrumentality of the Department of Defense to its employees.
Accordingly, the final regulations provide that the
[[Page 53651]]
Nonappropriated Fund Health Benefits Program is a government-sponsored
program and an eligible employer-sponsored plan. The Treasury
Department and the IRS are considering whether other government-
sponsored programs are eligible employer-sponsored plans.
C. Plan in the Individual Market
The proposed regulations provide that a plan in the individual
market means health insurance coverage offered to individuals not in
connection with a group health plan, including a qualified health plan
offered by an Exchange. Commentators stated that this definition is
ambiguous about whether qualified health plans are plans in the
individual market. The final regulations clarify that qualified health
plans offered through Exchanges are plans in the individual market.
Another commentator asked whether a plan offered to one specific
individual is a plan in the individual market. A plan offered to one
specific individual is a plan in the individual market only if the plan
is health insurance coverage under section 2791(b)(1) of the Public
Health Service Act, is not short-term limited duration coverage, and is
offered in the individual market within a state. The final regulations
clarify the meaning of the term plan in the individual market by
restating definitions of other essential terms.
D. Foreign Issuer Coverage
1. In General
Under section 5000A(f)(4) and Sec. 1.5000A-1(b)(2) of the final
regulations, an individual is treated as having minimum essential
coverage for a month if the individual is a bona fide resident of a
United States possession for the month, or if the month occurs during
any period described in section 911(d)(1)(A) or section 911(d)(1)(B)
that is applicable to the individual. Section 911(d)(1)(A) is
applicable to a citizen of the United States who has a tax home outside
the United States and is a bona fide resident of a foreign country or
countries during an uninterrupted period that includes an entire
taxable year. Section 911(d)(1)(B) is applicable to a U.S. citizen or
U.S. resident (as defined in section 7701(b)) who has a tax home
outside the United States and is present in a foreign country or
countries for at least 330 full days during a period of 12 consecutive
months.
A commentator expressed a concern that a United States citizen or
national who resides outside the United States may be subject to the
shared responsibility penalty even if the individual has health care
coverage provided by a foreign health insurance issuer (sometimes
referred to as a form of expatriate coverage) or the government of the
foreign country where the individual resides. The commentator requested
that individuals in this situation be exempt from section 5000A.
Under section 5000A(f)(4), a United States citizen or national
satisfying the requirements of section 911(d)(1) is deemed to have
minimum essential coverage. If the individual does not satisfy those
requirements, the remaining provisions of section 5000A apply.
Accordingly, the final regulations do not adopt the recommendation.
The same commentator and another commentator asked whether
expatriate coverage or coverage provided by a foreign insurance issuer
to foreign nationals lawfully present in the United States for an
extended period of time is minimum essential coverage. The commentators
acknowledged that some coverage provided by a foreign health insurance
issuer is not offered in the small or large group market, or the
individual market, within a state. However, the commentators noted that
the foreign health care coverage may be substantially similar to other
types of plans recognized as minimum essential coverage.
Under section 1304(d) of the Affordable Care Act (42 U.S.C.
18024(d)) and the final regulations, the term state means each of the
50 states and the District of Columbia. Coverage or a plan provided by
an issuer that is not offered within a state is neither an eligible
employer-sponsored plan nor a plan in the individual market.
Accordingly, the final regulations do not adopt this recommendation.
However, to provide relief in the situations that the two
commentators described, the HHS MEC regulations provide a process by
which a sponsor of a health plan, whether domestic or foreign, may
apply for recognition as minimum essential coverage under section
5000A(f)(1)(E). See 45 CFR 156.604.
2. Territory of the United States
A commentator questioned whether coverage offered by issuers
located in territories of the United States is minimum essential
coverage. Insured plans must be offered within a state to be treated as
an eligible employer-sponsored plan or as a plan in the individual
market. Section 1304(d) of the Affordable Care Act (42 U.S.C. 18024(d))
and the final regulations provide that the term state means each of the
50 states and the District of Columbia. Consequently, in general,
health insurance coverage and insured group health plans that are not
offered within one of the 50 states or the District of Columbia are
neither eligible employer-sponsored plans nor plans in the individual
market.
However, section 1323(a)(1) of the Affordable Care Act (42 U.S.C.
18043(a)(1)) provides that a territory electing to establish an
Exchange in accordance with part II of subtitle D of the Affordable
Care Act is treated as a state for applying basic rules governing
qualified health plans offered through Exchanges. As discussed earlier
in this preamble, a qualified health plan offered through an Exchange
is a plan in the individual market within a state. Accordingly, the
final regulations clarify that a qualified health plan offered through
an Exchange established by and within a territory of the United States
under section 1323(a)(1) of the Affordable Care Act is a plan in the
individual market within a state.
III. Exempt Individuals
A. Members of Recognized Religious Sects or Divisions
Consistent with section 5000A(d)(2)(A), the proposed regulations
provide that individuals who are members of a recognized religious sect
or division of the sect described in section 1402(g)(1) and who are
adherents of the established tenets or teachings of the sect or
division are eligible to receive a religious conscience exemption
certification from an Exchange. Commentators recommended that section
5000A(d)(2)(A) be narrowly construed to limit the ability of parents
who qualify for this religious conscience exemption to apply for a
religious conscience exemption on behalf of any minor children who,
owing to their youth, should not be considered full members of a
recognized religious sect or division of the sect.
Section 5000A(d)(2)(A) does not make a distinction between full and
less than full membership in a sect or division. Accordingly, the final
regulations do not adopt this recommendation. However, as explained in
the preamble to the proposed regulations, the section 5000A religious
conscience exemption is administered by HHS through Exchanges. The HHS
MEC regulations permit adult members of a sect or division to apply for
the exemption on behalf of their minor children. See 45 CFR 155.600
(definitions of applicant and application filer); 45 CFR 155.605(c)(1)
(eligibility standards for religious conscience exemption). Those
[[Page 53652]]
regulations further provide, however, that once a child turns 21 years
of age, to maintain the religious conscience exemption the child must
reapply for the exemption and attest to membership individually. See 45
CFR 155.605(c)(2).
B. Members of Health Care Sharing Ministries
The proposed regulations provide an exemption for members of health
care sharing ministries as defined in section 5000A(d)(2)(B)(ii).
Commentators recommended that individuals seeking the exemption based
on their membership in health care sharing ministries be required to
demonstrate membership for every month of the taxable year for which
they seek the exemption. The proposed regulations provide that
eligibility for the exemption for members of a health care sharing
ministry is determined monthly, and the final regulations retain this
rule.
C. Exempt Noncitizens
Section 5000A(d)(3) and the proposed regulations provide that an
individual who is not a citizen or national of the United States is
exempt for a month if the individual is not lawfully present in the
United States in that month. The proposed regulations provide that, for
this exemption, an individual who is not a citizen or national of the
United States is treated as not lawfully present in the United States
for a month in a taxable year if the individual is either (1) a
nonresident alien as defined in section 7701(b)(1)(B) for that taxable
year or (2) does not have lawful immigration status in the United
States (within the meaning of 45 CFR 155.20) for any day in the month.
Many commentators requested guidance on how individuals claim the
exemption for being not lawfully present in the United States and
recommended several reporting methods for this exemption. The final
regulations do not adopt any of the recommended reporting methods.
However, guidance on claiming exemptions will be provided in forms,
instructions, publications, or other guidance published by the IRS, and
these comments will be considered in developing that guidance.
Commentators also requested that the exemption for individuals not
lawfully present in the United States apply to all members of a
taxpayer's family if the taxpayer qualifies for the exemption. Section
5000A applies its coverage requirement and exemptions on an individual
basis, which is inconsistent with the commentators' recommendation.
Accordingly, the final regulations do not adopt this suggestion.
D. Incarcerated Individuals
Section 5000A(d)(4) provides that an individual is exempt for a
month for which the individual is incarcerated (other than
incarceration pending the disposition of charges). The proposed
regulations clarify that an individual confined for at least one day in
a jail, prison, or similar penal institution or correctional facility
after the disposition of charges is exempt for the month that includes
the day of confinement.
A commentator urged that those incarcerated while awaiting the
final disposition of charges also be given an exemption on account of
their incarceration. This recommendation is inconsistent with section
5000A(d)(4), which distinguishes between individuals incarcerated while
awaiting final disposition of charges and those incarcerated after the
final disposition of charges. Accordingly, the final regulations do not
adopt this suggestion.
In the alternative, the commentator requested treating incarcerated
individuals whose Medicaid benefits have been suspended as having
minimum essential coverage. An individual incarcerated pending
disposition of charges whose Medicaid benefits have been suspended
remains enrolled in Medicaid, is entitled to receive benefits for
healthcare provided outside the state prison system, and is not
required to re-enroll in Medicaid at the end of incarceration. Thus,
treating the individual as covered under Medicaid is consistent with
Sec. 1.5000A-1(b)(1), which provides that an individual has minimum
essential coverage for the month when the individual is enrolled in and
entitled to receive benefits under a program or plan identified as
minimum essential coverage in Sec. 1.5000A-2 for at least one day in
the month. Accordingly, an individual incarcerated pending disposition
of charges whose Medicaid benefits have been suspended is covered under
minimum essential coverage, and no revision to the regulations is
necessary to address the commentator's concern.
E. Individuals Who Cannot Afford Coverage
1. Household Income
To determine affordability of coverage, section 5000A(e)(1)(A) and
the proposed regulations require taxpayers to increase household income
by the portion of the required contribution made through a salary
reduction arrangement and excluded from gross income. The preamble to
the proposed regulations notes that the information necessary to make
the required adjustment may not be readily available to the employee or
the IRS and requests comments on practicable ways, if any, for making
the adjustment.
A commentator stated that the information required is not readily
available. The commentator recommended that, considering the limited
effect of the required adjustment, the IRS postpone enforcement of the
adjustment until a later year when the necessary information may become
more readily available and when the effect of the adjustment may be
accurately assessed.
The portion of the required contribution made through a salary
reduction arrangement that is excluded from gross income includes
amounts that an employee pays out of the employee's salary on a pre-tax
basis for minimum essential coverage under a cafeteria plan that is an
eligible employer-sponsored plan. Although the information may not be
readily available, generally it is possible for an employee to identify
amounts paid through a salary reduction arrangement that are excluded
from the individual's gross income. In addition, under the HHS MEC
regulations, a hardship exemption is available for an individual who
lacks access to affordable minimum essential coverage based on
projected household income. An individual seeking this exemption must
adjust projected household income by the amount paid through a salary
reduction arrangement for minimum essential coverage that is excluded
in the prior year. Accordingly, the final regulations do not adopt this
recommendation.
Several commentators suggested allowing an exemption or safe harbor
for individuals whose income early in the taxable year appears to
entitle them to the lack of affordable coverage exemption and who, as a
result, do not obtain minimum essential coverage. If these individuals
have large increases in income later in the year, they may be liable
for the shared responsibility payment if no other exemption applies.
The final regulations do not adopt this recommendation because it is
not administrable. The IRS does not have the monthly income data
necessary to verify eligibility for the proposed safe harbor or
exemption. However, as explained in this preamble, the HHS MEC
regulations provide for a prospective hardship exemption based on a
lack of affordable coverage determined on the basis of projected
household income. Individuals may mitigate potential adverse
consequences of mid-year increases in household income by applying for
this hardship exemption prospectively.
[[Page 53653]]
2. Required Contribution Percentage
One commentator requested a special rule for determining the
inflation adjustment of the required contribution percentage for low-
income taxpayers to provide relief if health care expenses grow more
rapidly than incomes. Section 5000A(e)(1)(D) provides specific rules
for annually calculating a uniform required contribution inflation
adjustment. Accordingly, the final regulations do not adopt this
suggestion.
The commentator also requested a special rule to avoid requiring
individuals to visit Exchanges to apply for a hardship exemption. Under
section 5000A(e)(5), the authority to prescribe the procedures for
applying for exemptions resides with the Secretary of HHS. Based on
this authorization, the HHS MEC regulations provide guidance addressing
which hardship exemptions must be acquired through an Exchange and
which may be claimed directly on a Federal income tax return.
3. Required Contribution
a. In General
A commentator recommended that individuals who are eligible for
unaffordable coverage under an eligible employer-sponsored plan qualify
for the lack of affordable coverage exemption only if coverage
purchased through an Exchange would also be unaffordable. The
commentator noted that those individuals might find affordable coverage
under plans in the individual market and that, if so, they should be
encouraged to enroll in them. Section 5000A(e)(1)(B) defines the
required contribution for two discrete groups based on whether an
individual is eligible for coverage under eligible employer-sponsored
plans. An individual cannot be described in both groups. Thus, section
5000A does not require an individual to test the affordability of
coverage under both an eligible employer-sponsored plan and a plan in
the individual market. Accordingly, the final regulations do not adopt
this suggestion.
b. Required Contribution for Individuals Eligible for Coverage Under
Eligible Employer-sponsored Plans
The proposed regulations under section 36B published on May 3, 2013
(78 FR 25909) (the proposed minimum value regulations) provide that
amounts newly made available for the current plan year under a health
reimbursement arrangement (HRA) that is integrated with an eligible
employer-sponsored plan are counted toward the employee's required
contribution in determining the affordability of the coverage if the
employee may use the amounts only for premiums or may choose to use the
amounts for either premiums or cost sharing. The preamble to the
proposed minimum value regulations states that regulations under
section 5000A will provide a similar rule for determining the effect of
amounts newly made available under an HRA for each plan year on the
determination of affordability of minimum essential coverage. It is
anticipated that future guidance under section 5000A will address the
treatment of employer contributions to HRAs in determining the required
contribution in a manner consistent with the treatment of these
contributions in final rulemaking under section 36B.
The proposed regulations provide that a former employee eligible to
enroll in continuation coverage is eligible for coverage under an
eligible employer-sponsored plan only if the former employee enrolls in
it. In addition to extending this rule to retiree coverage, the final
regulations clarify that an individual eligible for continuation or
retiree coverage because of a relationship to a former employee is
treated in the same manner as the former employee. Therefore,
individuals eligible for continuation or retiree coverage who do not
enroll in it, and who are not eligible for coverage under another
eligible employer-sponsored plan, determine qualification for the lack
of affordable coverage exemption under the rules that apply to
individuals ineligible for coverage for eligible employer-sponsored
plans.
c. Required Contribution for Individuals Ineligible for Coverage Under
Eligible Employer-sponsored Plans
To determine the required contribution for individuals who are
ineligible for coverage under eligible employer-sponsored plans, the
proposed regulations provide that the required contribution is the
premium for the applicable plan reduced by the amount of the credit
allowable under section 36B. The proposed regulations further provide
that, in general, the applicable plan is the lowest cost bronze plan
available in the Exchange serving the rating area where the individual
resides that would cover all members of the individual's nonexempt
family taking into account the rating factors (for example, an
individual's age) that an Exchange would use to determine the cost of
coverage. The proposed regulations allow taxpayers to make an
irrevocable election to use a simplified method to determine the
premium for the applicable plan.
One commentator requested that the election to use the simplified
method to determine the premium for the applicable plan, when a plan is
not offered that covers members of the entire tax household, be
revocable. The Treasury Department and the IRS are considering the
comment, as well as alternative simplified methods of identifying the
premium for the applicable plan. Accordingly, the final regulations
remove the simplified method rule that was included in the proposed
regulations and reserve on providing simplified methods for identifying
the premium for the applicable plan.
A commentator asked that characteristics of individuals in a
taxpayer's nonexempt family taken into account in identifying the
applicable plan expressly include tobacco use. The rule is intended to
reflect as accurately as possible a taxpayer's actual premium amount.
Therefore, the final regulations clarify that the characteristics used
to identify the applicable plan include tobacco use.
It is anticipated that future HHS guidance will specify that when
determining eligibility for the hardship exemption for individuals who
lack affordable coverage based on projected income described in 45 CFR
155.605(g)(2), the Exchange will calculate advance payments of the
premium tax credit using the rules specified in the regulations under
section 36B, providing that individuals who have minimum essential
coverage are excluded from the computation of the applicable benchmark
plan. This treatment will ensure that Exchanges can reuse existing
advance payment functionality instead of having to develop additional
functionality for the sole purpose of supporting this exemption.
d. Wellness Program Incentives
The proposed regulations do not address wellness program
incentives. Commentators recommended determining an individual's
required contribution without regard to any wellness program incentives
that, if received, would lower premiums. A commentator asked that
premiums for the applicable plan for an individual residing in a rating
area in a state participating in the Individual Market Wellness Program
Demonstration Project described in section 2705(l) of the Public Health
Service Act (42 U.S.C. 300gg-4(l)) disregard any premium-based wellness
incentive requirements, including incentives relating to tobacco use.
The proposed minimum value regulations disregard wellness program
[[Page 53654]]
incentives, except those related to tobacco use, in determining an
employee's required contribution under section 36B(c)(2)(C)(i). It is
anticipated that future guidance under section 5000A will address the
treatment of wellness program incentives in determining the required
contribution in a manner consistent with the treatment of these
incentives in final rulemaking under section 36B.
F. Household Income Below the Return Filing Threshold
The proposed regulations exempt an individual for a month in a
calendar year if the individual's household income for the taxable year
is less than the applicable filing threshold. The proposed regulations
provide that this below filing threshold exemption may be claimed on an
income tax return. Under the proposed regulations an individual is not
required to file an income tax return to claim this exemption. One
commentator requested that a taxpayer with household income below the
applicable filing threshold who files a return remain eligible for this
exemption. The final regulations retain the rule that an individual is
not required to file a Federal income tax return to claim this
exemption and clarify that a taxpayer with household income below the
applicable filing threshold who files a Federal income tax return may
claim the exemption on the filed return.
The same commentator inquired whether the filing threshold rule for
dependents in Sec. 1.5000A-3(f)(2)(ii) of the proposed regulations
affects the definition of household income in Sec. 1.5000A-1(d)(7).
Under Sec. 1.5000A-3(f)(2)(ii) a dependent's applicable filing
threshold is the same as the threshold for the taxpayer claiming the
dependent. Section 5000A(e)(2) allows an exemption for an individual
whose household income is less than the amount of gross income
specified in section 6012(a)(1) with respect to the taxpayer. The
taxpayer referred to in section 5000A(e)(2) is the taxpayer claiming
the dependent. Accordingly, a dependent claimed for an exemption
deduction uses the family's household income and the taxpayer's
applicable filing threshold in determining eligibility for the below
filing threshold exemption. This treatment has no effect on the
household income definition.
G. Members of Indian Tribes
The proposed regulations provide an exemption for individuals who
are members of federally-recognized Indian tribes. Many commentators
were concerned that this exemption was overly restrictive and
recommended that the final regulations broaden the exemption to include
all individuals who are eligible to receive services through the Indian
Health Service, a tribe or tribal organization clinic, or an urban
Indian organization (collectively referred to as I/T/U services).
Alternatively, commentators asked that coverage under I/T/U services be
recognized as minimum essential coverage solely for section 5000A or
that these individuals be eligible for a hardship exemption from
Exchanges.
The final regulations do not define coverage under I/T/U services
as minimum essential coverage because section 5000A does not
specifically identify I/T/U services as minimum essential coverage.
However, following consultation among HHS, tribal groups, and the
Treasury Department and the IRS, the HHS MEC regulations provide a
hardship exemption for an individual who is not a member of a
federally-recognized Indian tribe, but who is eligible for services
through an Indian health care provider, as defined in 42 CFR 447.50, or
is eligible for services through Indian Health Service in accordance
with 25 U.S.C. 1680c(a), (b), or (d)(3). See 45 CFR 155.605(g)(6).
Several commentators also requested that individuals be allowed to
claim the hardship exemption for those eligible for I/T/U services on
their income tax returns. The final regulations do not adopt this
suggestion because section 5000A(e)(5) provides HHS, through Exchanges,
with the authority to grant hardship exemptions not delegated to the
IRS.
H. Short Coverage Gap
The proposed regulations provide that an individual qualifies for
the short coverage gap exemption if the continuous period without
minimum essential coverage is less than three full calendar months and
is the first short coverage gap in the individual's taxable year.
Further, in determining whether a gap in coverage qualifies as a short
coverage gap, the length of the period without minimum essential
coverage is measured by reference to calendar months (for example,
January or February) in conjunction with the one day rule in Sec.
1.5000A-1(b). Therefore, if an individual is enrolled in and entitled
to receive benefits under a plan identified as minimum essential
coverage for one day in a calendar month, the month is not included in
the continuous period when applying the short coverage gap exemption.
Some commentators recommended making the short coverage gap
exemption available to cover an aggregate period of coverage of less
than three months, regardless of whether the period was continuous. The
commentators noted that those who switched jobs frequently might have
numerous short gaps in coverage throughout the year. The commentators'
recommendation is inconsistent with section 5000A(e)(4)(B)(iii), which
limits the short coverage gap exemption to one continuous period of
less than three months. Accordingly, the final regulations do not adopt
this suggestion. However, if a taxpayer has multiple short coverage
gaps due to extended waiting periods after switching employment or
because of other circumstances that prevent the taxpayer from obtaining
coverage, the taxpayer may be eligible for a hardship or other
exemption available through an Exchange. See 45 CFR 155.605.
Section 5000A(e)(4)(B)(i) provides that, in general, the length of
a continuous period without coverage is determined without regard to
the calendar years in which the period occurs. However, section
5000A(e)(4) expressly authorizes the Secretary of the Treasury to
prescribe rules for the collection of the shared responsibility payment
in cases in which a continuous period includes months in more than one
taxable year. The proposed regulations provide rules for a coverage gap
that straddles two taxable years. For the earlier taxable year, the
coverage gap terminates at the end of the earlier taxable year. For the
later taxable year, the coverage gap continues from the earlier taxable
year and terminates when the individual no longer lacks minimum
essential coverage. Thus, a taxpayer who lacked minimum essential
coverage in November and December of one year and January and February
of the following year has a coverage gap of two months in the earlier
taxable year and four months in the later taxable year.
Some commentators stated that the coverage gap in the earlier year
should include months in the later year in which an individual has no
minimum essential coverage. Other commentators recommended that all
continuous periods in a year begin no earlier than January 1, thereby
ignoring any gaps in coverage in the preceding year. The final
regulations adopt neither suggestion. To assist taxpayers in timely
filing returns and in the interests of efficient tax administration,
the final regulations provide that a continuous period terminates no
later than the last day of a taxable year. In addition, for the later
year when the same administrative concerns do not apply, consistent
with section 5000A(e)(4)(B)(i), the final regulations provide that a
continuous
[[Page 53655]]
period may include months in an earlier year.
Under the proposed regulations an individual has minimum essential
coverage for a month in which the individual is otherwise exempt from
section 5000A for the short coverage gap exemption. One commentator
asked whether gaps in coverage in 2013 affect the measurement of gaps
in coverage beginning in January 2014. Section 5000A is effective for
months beginning on or after January 1, 2014. Accordingly, the final
regulations provide that gaps in coverage prior to January 1, 2014, are
not taken into account when measuring the length of a coverage gap in
2014.
A commentator requested that any probationary period during which
an individual is enrolled in minimum essential coverage but not yet
entitled to benefits under the plan not be taken into account in
determining the length of a continuous period for the short coverage
gap exemption. As discussed in this preamble with regard to a similar
comment concerning a taxpayer who submitted an application for Medicaid
but is awaiting approval for enrollment, section 5000A(a) requires that
an individual have minimum essential coverage for the month. Unless
retroactive coverage is provided, an applicant awaiting approval for
enrollment is not covered until approval of the application. Therefore,
the final regulations do not adopt this recommendation. However, an
individual who is unable to obtain coverage in a timely manner because
of a lengthy approval process may be otherwise eligible for a hardship
or other exemption through an Exchange. See 45 CFR 155.605.
I. Additional Hardship Exemptions
A number of commentators proposed that the IRS adopt additional
hardship exemptions to address specific situations. Authority to define
circumstances giving rise to a hardship exemption, as well as authority
to grant hardship exemptions in individual cases, resides with HHS. HHS
has provided guidance on the hardship exemption in the HHS MEC
regulations.
Section 155.605(g)(3) of the HHS MEC regulations provides that the
IRS may allow a taxpayer to claim a hardship exemption for a calendar
year if the taxpayer was not required to file an income tax return
because the taxpayer's gross income was below the applicable return
filing threshold but nevertheless filed a return, claimed a dependent
with a return filing requirement and, as a result, had household income
that exceeds the applicable filing threshold.
Section 155.605(g)(5) of the HHS MEC regulations provides that the
IRS may allow a taxpayer to claim a hardship exemption for employed
family members who are eligible for affordable employer-sponsored self-
only coverage, but for whom the aggregate cost of employer-sponsored
coverage for all employed members of the family is unaffordable.
The information required to determine eligibility for these
hardship exemptions is available only at the time of tax filing.
Accordingly, the final regulations provide that eligible taxpayers may
claim these two hardship exemptions on a Federal income tax return.
J. Claiming Exemptions From the Shared Responsibility Payment
Section 1.5000A-3(k) of the proposed regulations addresses which
exemptions may be certified by an Exchange or claimed on a return, and
how to claim exemptions. The HHS MEC regulations address how to request
certification for an exemption from an Exchange. The manner for
claiming an exemption on a return is more appropriately addressed
through IRS forms, instructions, or other publications. Therefore, the
final regulations do not provide information on how to claim an
exemption on a Federal income tax return.
IV. Accuracy-Related Penalties
One commentator expressed concern that taxpayers would have
difficulty accurately calculating the shared responsibility payment.
Emphasizing the complexity of the calculation, the commentator
requested that the IRS not impose accuracy-related penalties under
section 6662 for underpayments caused by erroneous section 5000A
computations.
Section 6662 does not apply to a section 5000A shared
responsibility payment. The accuracy-related penalty of section 6662(a)
applies only to underpayments of tax, defined in section 6664. The
section 5000A shared responsibility payment is not taken into
consideration in determining whether there is an underpayment of tax
under section 6664. Therefore, the shared responsibility payment is not
taken into account under section 6662. Forms, instructions,
publications, or other guidance to be published by the IRS are
anticipated to assist taxpayers in determining the amount of an
applicable shared responsibility payment.
V. Effective/Applicability Date
These final regulations apply to taxable years ending after
December 31, 2013.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866, as
supplemented by Executive Order 13563. Therefore, a regulatory
assessment is not required. Section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations,
and, because the regulations do not impose a collection of information
requirement on small entities, the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the
notice of proposed rulemaking that preceded these final regulations was
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business, and no
comments were received.
Drafting Information
The principal authors of these final regulations are Sue-Jean Kim
and John B. Lovelace of the Office of Associate Chief Counsel (Income
Tax and Accounting). Other personnel from the IRS and the Treasury
Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding an
entry in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.5000A-4 also issued under 26 U.S.C. 5000A(e)(4).
0
Par 2. Sections 1.5000A-0 through 1.5000A-5 are added to read as
follows:
Sec. 1.5000A-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.5000A-1
through 1.5000A-5.
[[Page 53656]]
Sec. 1.5000A-1 Maintenance of minimum essential coverage and liability
for the shared responsibility payment.
(a) In general.
(b) Coverage under minimum essential coverage.
(1) In general.
(2) Special rule for United States citizens or residents residing
outside the United States or residents of territories.
(c) Liability for shared responsibility payment.
(1) In general.
(2) Liability for dependents.
(i) In general.
(ii) Special rules for dependents adopted or placed in foster care
during the taxable year.
(A) Taxpayers adopting an individual.
(B) Taxpayers placing an individual for adoption.
(C) Examples.
(3) Liability of individuals filing a joint return.
(d) Definitions.
(1) Affordable Care Act.
(2) Employee.
(3) Exchange.
(4) Family.
(5) Family coverage.
(6) Group health insurance coverage.
(7) Group health plan.
(8) Health insurance coverage.
(9) Health insurance issuer.
(10) Household income.
(i) In general.
(ii) Modified adjusted gross income.
(11) Individual market.
(12) Large and small group market.
(13) Month.
(14) Qualified health plan.
(15) Rating area.
(16) Self-only coverage.
(17) Shared responsibility family.
(18) State.
Sec. 1.5000A-2 Minimum essential coverage.
(a) In general.
(b) Government-sponsored program.
(1) In general.
(i) Medicare.
(ii) Medicaid.
(iii) Children's Health Insurance Program.
(iv) TRICARE.
(v) Veterans programs.
(vi) Peace Corp program.
(vii) Nonappropriated Fund Health Benefits Program.
(2) Government-sponsored program special rules.
(i) Coverage authorized under Section 1115 of the Social Security
Act.
(ii) Medicaid for the medically needy programs.
(iii) Limited benefits TRICARE programs.
(c) Eligible employer-sponsored plan.
(1) In general.
(2) Government-sponsored program generally not an eligible
employer-sponsored plan.
(d) Plan in the individual market.
(1) In general.
(2) Qualified health plan offered by an Exchange.
(e) Grandfathered health plan.
(f) Other coverage that qualifies as minimum essential coverage.
(g) Excepted benefits not minimum essential coverage.
Sec. 1.5000A-3 Exempt individuals.
(a) Members of recognized religious sects.
(1) In general.
(2) Exemption certification.
(b) Member of health care sharing ministries.
(1) In general.
(2) Health care sharing ministry.
(c) Exempt noncitizens.
(1) In general.
(2) Exempt noncitizens.
(d) Incarcerated individuals.
(1) In general.
(2) Incarcerated.
(e) Individuals with no affordable coverage.
(1) In general.
(2) Required contribution percentage.
(i) In general.
(ii) Indexing.
(iii) Plan year.
(3) Individuals eligible for coverage under eligible employer-
sponsored plans.
(i) Eligibility.
(A) In general.
(B) Multiple eligibility.
(C) Special rule for post-employment coverage.
(ii) Required contribution for individuals eligible for coverage
under an eligible employer-sponsored plan.
(A) Employees.
(B) Individuals related to employees.
(C) Required contribution for part-year period.
(D) Employer contributions to health reimbursement arrangements.
(E) Wellness program incentives.
(iii) Examples.
(4) Individuals ineligible for coverage under eligible employer-
sponsored plans.
(i) Eligibility for coverage other than an eligible employer-
sponsored plan.
(ii) Required contribution for individuals ineligible for coverage
under eligible employer-sponsored plans.
(A) In general.
(B) Applicable plan.
(1) In general.
(2) Lowest cost bronze plan does not cover all individuals included
in the taxpayer's nonexempt family.
(i) In general.
(ii) Optional simplified method for applicable plan identification.
(C) Credit allowable under section 36B.
(D) Required contribution for part-year period.
(iii) Examples.
(f) Household income below filing threshold.
(1) In general.
(2) Applicable filing threshold.
(i) In general.
(ii) Certain dependents.
(3) Manner of claiming the exemption.
(g) Members of Indian tribes.
(h) Individuals with hardship exemption certification.
(1) In general.
(2) Hardship exemption certification.
(3) Hardship exemptions that may be claimed on a return.
(i) [Reserved]
(j) Individuals with certain short coverage gaps.
(1) In general.
(2) Short coverage gap.
(i) In general.
(ii) Coordination with other exemptions.
(iii) More than one short coverage gap during calendar year.
(3) Continuous period.
(i) In general.
(ii) Continuous period straddling more than one taxable year.
(4) Examples.
Sec. 1.5000A-4 Computation of shared responsibility payment.
(a) In general.
(b) Monthly penalty amount.
(1) In general.
(2) Flat dollar amount.
(i) In general.
(ii) Applicable dollar amount.
(iii) Special applicable dollar amount for individuals under age
18.
(iv) Indexing of applicable dollar amount.
(3) Excess income amount.
(i) In general.
(ii) Income percentage.
(c) Monthly national average bronze plan premium.
(d) Examples.
Sec. 1.5000A-5 Administration and procedure.
(a) In general.
(b) Special rules.
(1) Waiver of criminal penalties.
(2) Limitations on liens and levies.
(3) Authority to offset against overpayment.
(c) Effective/applicability date.
Sec. 1.5000A-1 Maintenance of minimum essential coverage and
liability for the shared responsibility payment.
(a) In general. For each month during the taxable year, a nonexempt
[[Page 53657]]
individual must have minimum essential coverage or pay the shared
responsibility payment. For a month, a nonexempt individual is an
individual in existence for the entire month who is not an exempt
individual described in Sec. 1.5000A-3.
(b) Coverage under minimum essential coverage--(1) In general. An
individual has minimum essential coverage for a month in which the
individual is enrolled in and entitled to receive benefits under a
program or plan identified as minimum essential coverage in Sec.
1.5000A-2 for at least one day in the month.
(2) Special rule for United States citizens or residents residing
outside the United States or residents of territories. An individual is
treated as having minimum essential coverage for a month--
(i) If the month occurs during any period described in section
911(d)(1)(A) or section 911(d)(1)(B) that is applicable to the
individual; or
(ii) If, for the month, the individual is a bona fide resident of a
possession of the United States (as determined under section 937(a)).
(c) Liability for shared responsibility payment--(1) In general. A
taxpayer is liable for the shared responsibility payment for a month
for which--
(i) The taxpayer is a nonexempt individual without minimum
essential coverage; or
(ii) A nonexempt individual for whom the taxpayer is liable under
paragraph (c)(2) or (c)(3) of this section does not have minimum
essential coverage.
(2) Liability for dependents--(i) In general. For a month when a
nonexempt individual does not have minimum essential coverage, if the
nonexempt individual is a dependent (as defined in section 152) of
another individual for the other individual's taxable year including
that month, the other individual is liable for the shared
responsibility payment attributable to the dependent's lack of
coverage. An individual is a dependent of a taxpayer for a taxable year
if the individual satisfies the definition of dependent under section
152, regardless of whether the taxpayer claims the individual as a
dependent on a Federal income tax return for the taxable year. If an
individual may be claimed as a dependent by more than one taxpayer in
the same calendar year, the taxpayer who properly claims the individual
as a dependent for the taxable year is liable for the shared
responsibility payment attributable to the individual. If more than one
taxpayer may claim an individual as a dependent in the same calendar
year but no one claims the individual as a dependent, the taxpayer with
priority under the rules of section 152 to claim the individual as a
dependent is liable for the shared responsibility payment for the
individual.
(ii) Special rules for dependents adopted or placed in foster care
during the taxable year--(A) Taxpayers adopting an individual. If a
taxpayer adopts a nonexempt dependent (or accepts a nonexempt dependent
who is an eligible foster child as defined in section 152(f)(1)(C))
during the taxable year and is otherwise liable for the nonexempt
dependent under paragraph (c)(2)(i) of this section, the taxpayer is
liable under paragraph (c)(2)(i) of this section for the nonexempt
dependent only for the full months in the taxable year that follow the
month in which the adoption or acceptance occurs.
(B) Taxpayers placing an individual for adoption. If a taxpayer who
is otherwise liable for a nonexempt dependent under paragraph (c)(2)(i)
of this section places (or, by operation of law, must place) the
nonexempt dependent for adoption or foster care during the taxable
year, the taxpayer is liable under paragraph (c)(2)(i) of this section
for the nonexempt dependent only for the full months in the taxable
year that precede the month in which the adoption or foster care
placement occurs.
(C) Examples. The following examples illustrate the provisions of
this paragraph (c)(2)(ii). In each example the taxpayer's taxable year
is a calendar year.
Example 1. Taxpayers adopting a child. (i) E and F, married
individuals filing a joint return, initiate proceedings for the
legal adoption of a 2-year old child, G, in January 2016. On May 15,
2016, G becomes the adopted child (within the meaning of section
152(f)(1)(B)) of E and F, and resides with them for the remainder of
2016. Prior to the adoption, G resides with H, an unmarried
individual, with H providing all of G's support. For 2016 G meets
all requirements under section 152 to be E and F's dependent, and
not H's dependent.
(ii) Under paragraph (c)(2) of this section, E and F are not
liable for a shared responsibility payment attributable to G for
January through May of 2016, but are liable for a shared
responsibility payment attributable to G, if any, for June through
December of 2016. H is not liable for a shared responsibility
payment attributable to G for any month in 2016, because G is not
H's dependent for 2016 under section 152.
Example 2. Taxpayers placing a child for adoption. (i) The facts
are the same as Example 1, except the legal adoption occurs on
August 15, 2016, and, for 2016, G meets all requirements under
section 152 to be H's dependent, and not E and F's dependent.
(ii) Under paragraph (c)(2) of this section, H is liable for a
shared responsibility payment attributable to G, if any, for January
through July of 2016, but is not liable for a shared responsibility
payment attributable to G for August through December of 2016. E and
F are not liable for a shared responsibility payment attributable to
G for any month in 2016, because G is not E and F's dependent for
2016 under section 152.
(3) Liability of individuals filing a joint return. Married
individuals (within the meaning of section 7703) who file a joint
return for a taxable year are jointly liable for any shared
responsibility payment for a month included in the taxable year.
(d) Definitions. The definitions in this paragraph (d) apply to
this section and Sec. Sec. 1.5000A-2 through 1.5000A-5.
(1) Affordable Care Act. Affordable Care Act refers to the Patient
Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119
(2010)), and the Health Care and Education Reconciliation Act of 2010,
Public Law 111-152 (124 Stat. 1029 (2010)), as amended.
(2) Employee. Employee includes former employees.
(3) Exchange. Exchange has the same meaning as in 45 CFR 155.20.
(4) Family. A taxpayer's family means the individuals for whom the
taxpayer properly claims a deduction for a personal exemption under
section 151 for the taxable year.
(5) Family coverage. Family coverage means health insurance that
covers more than one individual.
(6) Group health insurance coverage. Group health insurance
coverage has the same meaning as in section 2791(b) of the Public
Health Service Act (42 U.S.C. 300gg-91(b)(4)).
(7) Group health plan. Group health plan has the same meaning as in
section 2791(a) of the Public Health Service Act (42 U.S.C. 300gg-
91(a)(1)).
(8) Health insurance coverage. Health insurance coverage has the
same meaning as in section 2791(b)(1) of the Public Health Service Act
(42 U.S.C. 300gg-91(b)(1)).
(9) Health insurance issuer. Health insurance issuer has the same
meaning as in section 2791(b)(2) of the Public Health Service Act (42
U.S.C. 300gg-91(b)(2)).
(10) Household income--(i) In general. Household income means the
sum of--
(A) A taxpayer's modified adjusted gross income; and
(B) The aggregate modified adjusted gross income of all other
individuals who--
(1) Are included in the taxpayer's family under paragraph (d)(4) of
this section; and
(2) Are required to file a Federal income tax return for the
taxable year.
[[Page 53658]]
(ii) Modified adjusted gross income. Modified adjusted gross income
means adjusted gross income (within the meaning of section 62)
increased by--
(A) Amounts excluded from gross income under section 911; and
(B) Tax-exempt interest the taxpayer receives or accrues during the
taxable year.
(11) Individual market. Individual market has the same meaning as
in section 1304(a)(2) of the Affordable Care Act (42 U.S.C.
18024(a)(2)).
(12) Large and small group market. Large group market and small
group market have the same meanings as in section 1304(a)(3) of the
Affordable Care Act (42 U.S.C. 18024(a)(3)).
(13) Month. Month means calendar month.
(14) Qualified health plan. Qualified health plan has the same
meaning as in section 1301(a) of the Affordable Care Act (42 U.S.C.
18021(a)).
(15) Rating area. Rating area has the same meaning as in Sec.
1.36B-1(n).
(16) Self-only coverage. Self-only coverage means health insurance
that covers one individual.
(17) Shared responsibility family. Shared responsibility family
means, for a month, all nonexempt individuals for whom the taxpayer
(and the taxpayer's spouse, if the taxpayer is married and files a
joint return with the spouse) is liable for the shared responsibility
payment under paragraph (c) of this section.
(18) State. State means each of the 50 states and the District of
Columbia.
Sec. 1.5000A-2 Minimum essential coverage.
(a) In general. Minimum essential coverage means coverage under a
government-sponsored program (described in paragraph (b) of this
section), an eligible employer-sponsored plan (described in paragraph
(c) of this section), a plan in the individual market (described in
paragraph (d) of this section), a grandfathered health plan (described
in paragraph (e) of this section), or other health benefits coverage
(described in paragraph (f) of this section). Minimum essential
coverage does not include coverage described in paragraph (g) of this
section. All terms defined in this section apply for purposes of this
section and Sec. 1.5000A-1 and Sec. Sec. 1.5000A-3 through 1.5000A-5.
(b) Government-sponsored program--(1) In general. Except as
provided in paragraph (2), government-sponsored program means any of
the following:
(i) Medicare. The Medicare program under part A of Title XVIII of
the Social Security Act (42 U.S.C. 1395c and following sections);
(ii) Medicaid. The Medicaid program under Title XIX of the Social
Security Act (42 U.S.C. 1396 and following sections), other than--
(A) Optional coverage of family planning services under section
1902(a)(10)(A)(ii)(XXI) of the Social Security Act (42 U.S.C.
1396a(a)(10)(A)(ii)(XXI));
(B) Optional coverage of tuberculosis-related services under
section 1902(a)(10)(A)(ii)(XII) of the Social Security Act (42 U.S.C.
1396a(a)(10)(A)(ii)(XII));
(C) Coverage of pregnancy-related services under section
1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) of the Social Security Act
(42 U.S.C. 1396a(a)(10)(A)(i)(IV), (a)(10)(A)(ii)(IX)); or
(D) Coverage limited to treatment of emergency medical conditions
in accordance with 8 U.S.C. 1611(b)(1)(A), as authorized by section
1903(v) of the Social Security Act (42 U.S.C. 1396b(v)).
(iii) Children's Health Insurance Program. The Children's Health
Insurance Program (CHIP) under Title XXI of the Social Security Act (42
U.S.C. 1397aa and following sections);
(iv) TRICARE. Medical coverage under chapter 55 of Title 10,
U.S.C., including coverage under the TRICARE program.
(v) Veterans programs. The following health care programs under
chapter 17 or 18 of Title 38, U.S.C.:
(A) The medical benefits package authorized for eligible veterans
under 38 U.S.C. 1710 and 38 U.S.C. 1705;
(B) The Civilian Health and Medical Program of the Department of
Veterans Affairs (CHAMPVA) authorized under 38 U.S.C. 1781; and
(C) The comprehensive health care program authorized under 38
U.S.C. 1803 and 38 U.S.C. 1821 for certain children of Vietnam Veterans
and Veterans of covered service in Korea who are suffering from spina
bifida.
(vi) Peace Corp program. A health plan under section 2504(e) of
Title 22, U.S.C. (relating to Peace Corps volunteers); and
(vii) Nonappropriated Fund Health Benefits Program. The
Nonappropriated Fund Health Benefits Program of the Department of
Defense, established under section 349 of the National Defense
Authorization Act for Fiscal Year 1995 (Pub. L. 103-337; 10 U.S.C. 1587
note).
(2) Government-sponsored program special rules--(i) Coverage
authorized under Section 1115 of the Social Security Act. [Reserved]
(ii) Medicaid for the medically needy programs. [Reserved]
(iii) Limited benefits TRICARE programs. [Reserved]
(c) Eligible employer-sponsored plan--(1) In general. Eligible
employer-sponsored plan means, with respect to any employee:
(i) Group health insurance coverage offered by, or on behalf of, an
employer to the employee that is--
(A) A governmental plan (within the meaning of section 2791(d)(8)
of the Public Health Service Act (42 U.S.C. 300gg-91(d)(8)));
(B) Any other plan or coverage offered in the small or large group
market within a State;
(C) A grandfathered health plan (within the meaning of paragraph
(e) of this section) offered in a group market; or
(ii) A self-insured group health plan under which coverage is
offered by, or on behalf of, an employer to the employee.
(2) Government-sponsored program generally not an eligible
employer-sponsored plan. Except for the program identified in paragraph
(b)(7) of this section, a government-sponsored program described in
paragraph (b) of this section is not an eligible employer-sponsored
plan.
(d) Plan in the individual market--(1) In general. Plan in the
individual market means health insurance coverage offered to
individuals in the individual market within a state, other than short-
term limited duration insurance within the meaning of section
2791(b)(5) of the Public Health Service Act (42 U.S.C. 300gg-91(b)(5)).
(2) Qualified health plan offered by an Exchange. A qualified
health plan offered by an Exchange is a plan in the individual market.
If a territory of the United States elects to establish an Exchange
under section 1323(a) and (b) of the Affordable Care Act (42 U.S.C.
18043(a)(1), (b)), a qualified health plan offered by that Exchange is
a plan in the individual market.
(e) Grandfathered health plan. Grandfathered health plan means any
group health plan or group health insurance coverage to which section
1251 of the Affordable Care Act (42 U.S.C. 18011) applies.
(f) Other coverage that qualifies as minimum essential coverage.
Minimum essential coverage includes any plan or arrangement recognized
by the Secretary of Health and Human Services, in coordination with the
Secretary of the Treasury, as minimum essential coverage.
(g) Excepted benefits not minimum essential coverage. Minimum
essential coverage does not include any health insurance coverage that
consists solely
[[Page 53659]]
of excepted benefits described in section 2791(c)(1), (c)(2), (c)(3),
or (c)(4) of the Public Health Service Act (42 U.S.C. 300gg-91(c)).
Sec. 1.5000A-3 Exempt individuals.
(a) Members of recognized religious sects--(1) In general. An
individual is an exempt individual for a month that includes a day on
which the individual has in effect a religious conscience exemption
certification described in paragraph (a)(2) of this section.
(2) Exemption certification. A religious conscience exemption
certification is issued by an Exchange in accordance with the
requirements of section 1311(d)(4)(H) of the Affordable Care Act (42
U.S.C. 18031(d)(4)(H)), 45 CFR 155.605(c), and 45 CFR 155.615(b) and
certifies that an individual is--
(i) A member of a recognized religious sect or division of the sect
that is described in section 1402(g)(1); and
(ii) An adherent of established tenets or teachings of the sect or
division as described in that section.
(b) Member of health care sharing ministries--(1) In general. An
individual is an exempt individual for a month that includes a day on
which the individual is a member of a health care sharing ministry.
(2) Health care sharing ministry. For purposes of this section,
health care sharing ministry means an organization--
(i) That is described in section 501(c)(3) and is exempt from tax
under section 501(a);
(ii) Members of which share a common set of ethical or religious
beliefs and share medical expenses among themselves in accordance with
those beliefs and without regard to the state in which a member resides
or is employed;
(iii) Members of which retain membership even after they develop a
medical condition;
(iv) That (or a predecessor of which) has been in existence at all
times since December 31, 1999;
(v) Members of which have shared medical expenses continuously and
without interruption since at least December 31, 1999; and
(vi) That conducts an annual audit performed by an independent
certified public accounting firm in accordance with generally accepted
accounting principles and makes the annual audit report available to
the public upon request.
(c) Exempt noncitizens--(1) In general. An individual is an exempt
individual for a month that the individual is an exempt noncitizen.
(2) Exempt noncitizens. For purposes of this section, an individual
is an exempt noncitizen for a month if the individual--
(i) Is not a U.S. citizen or U.S. national for any day during the
month; and
(ii) Is either--
(A) A nonresident alien (within the meaning of section
7701(b)(1)(B)) for the taxable year that includes the month; or
(B) An individual who is not lawfully present (within the meaning
of 45 CFR 155.20) on any day in the month.
(d) Incarcerated individuals--(1) In general. An individual is an
exempt individual for a month that includes a day on which the
individual is incarcerated.
(2) Incarcerated. For purposes of this section, the term
incarcerated means confined, after the disposition of charges, in a
jail, prison, or similar penal institution or correctional facility.
(e) Individuals with no affordable coverage--(1) In general. An
individual is an exempt individual for a month in which the individual
lacks affordable coverage. For purposes of this paragraph (e), an
individual lacks affordable coverage in a month if the individual's
required contribution (determined on an annual basis) for minimum
essential coverage for the month exceeds the required contribution
percentage (as defined in paragraph (e)(2) of this section) of the
individual's household income. For purposes of this paragraph (e), an
individual's household income is increased by any amount of the
required contribution made through a salary reduction arrangement that
is excluded from gross income.
(2) Required contribution percentage--(i) In general. Except as
provided in paragraph (e)(2)(ii) of this section, the required
contribution percentage is 8 percent.
(ii) Indexing. For plan years beginning in any calendar year after
2014, the required contribution percentage is the percentage determined
by the Department of Health and Human Services that reflects the excess
of the rate of premium growth between the preceding calendar year and
2013 over the rate of income growth for the period.
(iii) Plan year. For purposes of this paragraph (e), plan year
means the eligible employer-sponsored plan's regular 12-month coverage
period, or for a new employee or an individual who enrolls during a
special enrollment period, the remainder of a 12-month coverage period.
(3) Individuals eligible for coverage under eligible employer-
sponsored plans--(i) Eligibility--(A) In general. Except as provided in
paragraph (e)(3)(i)(B) of this section, an employee or related
individual (as defined in paragraph (e)(3)(ii)(B) of this section) is
treated as eligible for coverage under an eligible employer-sponsored
plan for a month during a plan year if the employee or related
individual could have enrolled in the plan for any day in that month
during an open or special enrollment period, regardless of whether the
employee or related individual is eligible for any other type of
minimum essential coverage.
(B) Multiple eligibility. For purposes of this paragraph (e)(3), an
employee eligible for coverage under an eligible employer-sponsored
plan offered by the employee's employer is not treated as eligible as a
related individual for coverage under an eligible employer-sponsored
plan (for example, an eligible employer-sponsored plan offered by the
employer of the employee's spouse) for any month included in the plan
year of the eligible employer-sponsored plan offered by the employee's
employer.
(C) Special rule for post-employment coverage. A former employee or
an individual related to a former employee, who may enroll in
continuation coverage required under Federal law or a state law that
provides comparable continuation coverage, or in retiree coverage under
an eligible employer-sponsored plan, is eligible for coverage under an
eligible employer-sponsored plan only if the individual enrolls in the
coverage.
(ii) Required contribution for individuals eligible for coverage
under an eligible employer-sponsored plan--(A) Employees. In the case
of an employee who is eligible to purchase coverage under an eligible
employer-sponsored plan sponsored by the employee's employer, the
required contribution is the portion of the annual premium that the
employee would pay (whether through salary reduction or otherwise) for
the lowest cost self-only coverage.
(B) Individuals related to employees. In the case of an individual
who is eligible for coverage under an eligible employer-sponsored plan
because of a relationship to an employee and for whom a personal
exemption deduction under section 151 is claimed on the employee's
Federal income tax return (related individual), the required
contribution is the portion of the annual premium that the employee
would pay (whether through salary reduction or otherwise) for the
lowest cost family coverage that would cover the employee and all
related individuals who are included in the employee's family and are
not otherwise exempt under Sec. 1.5000A-3.
(C) Required contribution for part-year period. For each individual
[[Page 53660]]
described in paragraph (e)(3)(ii)(A) or (e)(3)(ii)(B) of this section,
affordability under this paragraph (e)(3) is determined separately for
each employment period that is less than a full calendar year or for
the portions of an employer's plan year that fall in different taxable
years of the individual. Coverage under an eligible employer-sponsored
plan is affordable for a part-year period if the annualized required
contribution for self-only coverage (in the case of the employee) or
family coverage (in the case of a related individual) under the plan
for the part-year period does not exceed the required contribution
percentage of the individual's household income for the taxable year.
The annualized required contribution is the required contribution
determined under paragraph (e)(3)(ii)(A) or (e)(3)(ii)(B) of this
section for the part-year period times a fraction, the numerator of
which is 12 and the denominator of which is the number of months in the
part-year period during the individual's taxable year. Only full
calendar months are included in the computation under this paragraph
(e)(3)(ii)(C).
(D) Employer contributions to health reimbursement arrangements.
[Reserved]
(E) Wellness program incentives. [Reserved]
(iii) Examples. The following examples illustrate the application
of this paragraph (e)(3). Unless stated otherwise, in each example,
each individual's taxable year is a calendar year, the individual is
ineligible for any other exemptions described in this section for a
month, the rate of premium growth has not exceeded the rate of income
growth since 2013, and the individual's employer offers a single plan
that uses a calendar plan year and is an eligible employer-sponsored
plan as described in Sec. 1.5000A-2(c).
Example 1. Unmarried employee with no dependents. Taxpayer A is
an unmarried individual with no dependents. In November 2015, A is
eligible to enroll in self-only coverage under a plan offered by A's
employer for calendar year 2016. If A enrolls in the coverage, A is
required to pay $5,000 of the total annual premium. In 2016, A's
household income is $60,000. Under paragraph (e)(3)(ii)(A) of this
section, A's required contribution is $5,000, the portion of the
annual premium A pays for self-only coverage. Under paragraph (e)(1)
of this section, A lacks affordable coverage for 2016 because A's
required contribution ($5,000) is greater than 8% of A's household
income ($4,800).
Example 2. Married employee with dependents. Taxpayers B and C
are married and file a joint return for 2016. B and C have two
children, D and E. In November 2015, B is eligible to enroll in
self-only coverage under a plan offered by B's employer for calendar
year 2016 at a cost of $5,000 to B. C, D, and E are eligible to
enroll in family coverage under the same plan for 2016 at a cost of
$20,000 to B. B, C, D, and E's household income for 2016 is $90,000.
Under paragraph (e)(3)(ii)(A) of this section, B's required
contribution is B's share of the cost for self-only coverage,
$5,000. Under paragraph (e)(1) of this section, B has affordable
coverage for 2016 because B's required contribution ($5,000) does
not exceed 8% of B's household income ($7,200). Under paragraph
(e)(3)(ii)(B) of this section, the required contribution for C, D,
and E is B's share of the cost for family coverage, $20,000. Under
paragraph (e)(1) of this section, C, D, and E lack affordable
coverage for 2016 because their required contribution ($20,000)
exceeds 8% of their household income ($7,200).
Example 3. Plan year is a fiscal year. (i) Taxpayer F is an
unmarried individual with no dependents. In June 2015, F is eligible
to enroll in self-only coverage under a plan offered by F's employer
for the period July 2015 through June 2016 at a cost to F of $4,750.
In June 2016, F is eligible to enroll in self-only coverage under a
plan offered by F's employer for the period July 2016 through June
2017 at a cost to F of $5,000. In 2016, F's household income is
$60,000.
(ii) Under paragraph (e)(3)(ii)(C) of this section, F's
annualized required contribution for the period January 2016 through
June 2016 is $4,750 ($2,375 paid for premiums in 2016 x 12/6). Under
paragraph (e)(1) of this section, F has affordable coverage for
January 2016 through June 2016 because F's annualized required
contribution ($4,750) does not exceed 8% of F's household income
($4,800).
(iii) Under paragraph (e)(3)(ii)(C) of this section, F's
annualized required contribution for the period July 2016 to
December 2016 is $5,000 ($2,500 paid for premiums in 2016 x 12/6).
Under paragraph (e)(1) of this section, F lacks affordable coverage
for July 2016 through December 2016 because F's annualized required
contribution ($5,000) exceeds 8% of F's household income ($4,800).
Example 4. Eligibility for coverage under an eligible employer-
sponsored plan and under government sponsored coverage. Taxpayer G
is unmarried and has one child, H. In November 2015, H is eligible
to enroll in family coverage under a plan offered by G's employer
for 2016. H is also eligible to enroll in the CHIP program for 2016.
Under paragraph (e)(3)(i) of this section, H is treated as eligible
for coverage under an eligible employer-sponsored plan for each
month in 2016, notwithstanding that H is eligible to enroll in
government sponsored coverage for the same period.
(4) Individuals ineligible for coverage under eligible employer-
sponsored plans--(i) Eligibility for coverage other than an eligible
employer-sponsored plan. An individual is treated as ineligible for
coverage under an eligible employer-sponsored plan for a month that is
not described in paragraph (e)(3)(i) of this section.
(ii) Required contribution for individuals ineligible for coverage
under eligible employer-sponsored plans--(A) In general. In the case of
an individual who is ineligible for coverage under an eligible
employer-sponsored plan, the required contribution is the premium for
the applicable plan, reduced by the maximum amount of any credit
allowable under section 36B for the taxable year, determined as if the
individual was covered for the entire taxable year by a qualified
health plan offered through the Exchange serving the rating area where
the individual resides.
(B) Applicable plan--(1) In general. Except as provided in
paragraph (e)(4)(ii)(B)(2) of this section, applicable plan means the
single lowest cost bronze plan available in the individual market
through the Exchange serving the rating area in which the individual
resides (without regard to whether the individual purchased a qualified
health plan through the Exchange) that would cover all individuals in
the individual's nonexempt family. For purposes of this paragraph
(e)(4), an individual's nonexempt family means the family (as defined
in Sec. 1.5000A-1(d)(4)) that includes the individual, excluding any
family members who are otherwise exempt under section 1.5000A-3 or are
treated as eligible for coverage under an eligible employer-sponsored
plan under paragraph (e)(3)(i) of this section. The premium for the
applicable plan takes into account rating factors (for example, an
individual's age or tobacco use) that an Exchange would use to
determine the cost of coverage.
(2) Lowest cost bronze plan does not cover all individuals included
in the taxpayer's nonexempt family--(i) In general. If the Exchange
serving the rating area where the individual resides does not offer a
single bronze plan covering all individuals included in the
individual's nonexempt family, the premium for the applicable plan is
the sum of the premiums for the lowest cost bronze plans that are
offered through the Exchanges serving the rating areas where one or
more of the individuals reside that would cover in the aggregate all
the individuals in the individual's nonexempt family. For instance,
coverage offered through the Exchange in a rating area might not cover
a family member living in different rating area or a single policy
might not cover all the members in a taxpayer's household.
(ii) Optional simplified method for applicable plan identification.
[Reserved]
[[Page 53661]]
(C) Credit allowable under section 36B. For purposes of paragraph
(e)(4)(ii)(A) of this section, maximum amount of any credit allowable
under section 36B means the maximum amount of the credit that would be
allowable to the individual, or to the taxpayer who can properly claim
the individual as a dependent, under section 36B if all members of the
individual's nonexempt family enrolled in a qualified health plan
through the Exchange serving the rating area where the individual
resides.
(D) Required contribution for part-year period. For each individual
described in paragraph (e)(4)(ii)(A) of this section, affordability
under paragraph (e)(4) of this section is determined separately for
each period described in paragraph (e)(4)(ii)(E) of this section that
is less than a 12-month period. Coverage under a plan is affordable for
a part-year period if the annualized required contribution for coverage
under the plan for the part-year period does not exceed the required
contribution percentage of the individual's household income for the
taxable year. The annualized required contribution is the required
contribution determined under paragraph (e)(4)(ii)(A) of this section
for the part-year period times a fraction, the numerator of which is 12
and the denominator of which is the number of months in the part-year
period during the individual's taxable year. Only full calendar months
are included in the computation under this paragraph (e)(4)(ii)(D).
(iii) Examples. The following examples illustrate the provisions of
this paragraph (e)(4). Unless stated otherwise, in each example the
taxpayer's taxable year is a calendar year, the rate of premium growth
has not exceeded the rate of income growth since 2013, and the taxpayer
is ineligible for any of the exemptions described in paragraphs (b)
through (i) of this section for a month.
Example 1. Unmarried employee with no dependents. (i) Taxpayer G
is an unmarried individual with no dependents. G is ineligible to
enroll in any minimum essential coverage other than coverage in the
individual market for all months in 2016. The annual premium for the
lowest cost bronze self-only plan in G's rating area (G's applicable
plan) is $5,000. The adjusted annual premium for the second lowest
cost silver self-only plan in G's rating area (G's applicable
benchmark plan within the meaning of Sec. 1.36B-3(f)) is $5,500. In
2016 G's household income is $40,000, which is 358% of the Federal
poverty line for G's family size for the taxable year.
(ii) Under paragraph (e)(4)(ii)(C) of this section, the credit
allowable under section 36B is determined pursuant to section 36B.
With household income at 358% of the Federal poverty line, G's
applicable percentage is 9.5. Because each month in 2016 is a
coverage month (within the meaning of Sec. 1.36B-3(c)), G's maximum
credit allowable under section 36B is the excess of G's premium for
the applicable benchmark plan over the product of G's household
income and G's applicable percentage ($1,700). Therefore, under
paragraph (e)(4)(ii)(A) of this section, G's required contribution
is $3,300. Under paragraph (e)(1) of this section, G lacks
affordable coverage for 2016 because G's required contribution
($3,300) exceeds 8% of G's household income ($3,200).
Example 2. Family. (i) In 2016 Taxpayers M and N are married and
file a joint return. M and N have two children, P and Q. M, N, P,
and Q are ineligible to enroll in minimum essential coverage other
than coverage in the individual market for a month in 2016. The
annual premium for M, N, P, and Q's applicable plan is $20,000. The
adjusted annual premium for M, N, P, and Q's applicable benchmark
plan (within the meaning of Sec. 1.36B-3(f)) is $25,000. M and N's
household income is $80,000, which is 347% of the Federal poverty
line for a family size of 4 for the taxable year.
(ii) Under paragraph (e)(4)(ii)(C) of this section, the credit
allowable under section 36B is determined pursuant to section 36B.
With household income at 347% of the Federal poverty line, the
applicable percentage is 9.5. Because each month in 2016 is a
coverage month (within the meaning of Sec. 1.36B-3(c)), the maximum
credit allowable under section 36B is the excess of the premium for
the applicable benchmark plan over the product of the household
income and the applicable percentage ($17,400). Therefore, under
paragraph (e)(4)(ii)(A) of this section, the required contribution
for M, N, P, and Q is $2,600. Under paragraph (e)(1) of this
section, M, N, P, and Q have affordable coverage for 2016 because
their required contribution ($2,600) does not exceed 8% of their
household income ($6,400).
Example 3. Family with some members eligible for government-
sponsored coverage. (i) In 2016 Taxpayers U and V are married and
file a joint return. U and V have two children, W and X. U and V are
ineligible to enroll in minimum essential coverage other than
coverage in the individual market for all months in 2016; however, W
and X are eligible for coverage under CHIP for 2016. The annual
premium for U, V, W, and X's applicable plan is $20,000. The
adjusted annual premium for the second lowest cost silver plan that
would cover U and V (the applicable benchmark plan within the
meaning of Sec. 1.36B-3(f)) is $12,500. U and V's household income
is $50,000, which is 217% of the Federal poverty line for a family
size of 4 for the taxable year. W and X do not enroll in CHIP
coverage.
(ii) Under paragraph (e)(4)(ii)(C) of this section, the credit
allowable under section 36B is determined pursuant to section 36B.
With household income at 217% of the Federal poverty line, the
applicable percentage is 6.89. Each month in 2016 is a coverage
month (within the meaning of Sec. 1.36B-3(c)) for U and V, but no
months in 2016 are coverage months for W and X because they are
eligible for CHIP coverage. The maximum credit allowable under
section 36B is the excess of the premium for the applicable
benchmark plan over the product of the household income and the
applicable percentage ($9,055). Therefore, under paragraph
(e)(4)(ii)(A) of this section, the required contribution is $10,945.
Under paragraph (e)(1) of this section, U, V, W, and X lack
affordable coverage for 2016 because their required contribution
($10,945) exceeds 8% of their household income ($4,000).
Example 4. Family with some members enrolled in government-
sponsored minimum essential coverage. The facts are the same as
Example 3, except W and X enroll in CHIP coverage on January 1,
2016. Under paragraph (e)(4)(ii)(B), U, V, W, and X are members of U
and V's nonexempt family for 2016. Therefore, the annual premium for
the applicable plan is the same as in Example 3 ($20,000). The
maximum credit allowable under section 36B is also the same as in
Example 3 ($9,055). Under paragraph (e)(4)(ii)(A) of this section,
the required contribution is $10,945. Under paragraph (e)(1) of this
section, U and V lack affordable coverage for 2016 because their
required contribution ($10,945) exceeds 8% of their household income
($4,000).
(f) Household income below filing threshold--(1) In general. An
individual is an exempt individual for any taxable year for which the
individual's household income is less than the applicable filing
threshold.
(2) Applicable filing threshold--(i) In general. For purposes of
this section, applicable filing threshold means the amount of gross
income that would trigger an individual's requirement to file a Federal
income tax return under section 6012(a)(1).
(ii) Certain dependents. The applicable filing threshold for an
individual who is properly claimed as a dependent by another taxpayer
is equal to the other taxpayer's applicable filing threshold.
(3) Manner of claiming the exemption. A taxpayer is not required to
file a Federal income tax return solely to claim the exemption
described in this paragraph (f). If a taxpayer has a household income
below the applicable filing threshold and nevertheless files a Federal
income tax return, the taxpayer may claim the exemption described in
this paragraph (f) on the return.
(g) Members of Indian tribes. An individual is an exempt individual
for a month that includes a day on which the individual is a member of
an Indian tribe. For purposes of this section, Indian tribe means a
group or community described in section 45A(c)(6).
(h) Individuals with hardship exemption certification--(1) In
general. An individual is an exempt individual
[[Page 53662]]
for a month that includes a day on which the individual has in effect a
hardship exemption certification described in paragraph (h)(2) of this
section.
(2) Hardship exemption certification. A hardship exemption
certification is issued by an Exchange under section 1311(d)(4)(H) of
the Affordable Care Act (42 U.S.C. 18031(d)(4)(H)), 45 CFR
155.605(g)(1), (g)(2), (g)(4) and (g)(6), 45 CFR 155.610(i), and 45 CFR
155.615(f), and certifies that an individual has suffered a hardship
(as that term is defined in 45 CFR 155.605(g)) affecting the capability
to obtain minimum essential coverage.
(3) Hardship exemptions that may be claimed on a return. A taxpayer
who meets the requirements of 45 CFR 155.605(g)(3) or 45 CFR
155.605(g)(5) may claim a hardship exemption for a calendar year on a
Federal income tax return.
(i) [Reserved]
(j) Individuals with certain short coverage gaps--(1) In general.
An individual is an exempt individual for a month the last day of which
is included in a short coverage gap.
(2) Short coverage gap--(i) In general. Short coverage gap means a
continuous period of less than three months in which the individual is
not covered under minimum essential coverage. If the individual does
not have minimum essential coverage for a continuous period of three or
more months, none of the months included in the continuous period are
treated as included in a short coverage gap.
(ii) Coordination with other exemptions. For purposes of this
paragraph (j), an individual is treated as having minimum essential
coverage for a month in which an individual is exempt under any of
paragraphs (a) through (h) of this section.
(iii) More than one short coverage gap during calendar year. If a
calendar year includes more than one short coverage gap, the exemption
provided by this paragraph (j) only applies to the earliest short
coverage gap.
(3) Continuous period--(i) In general. Except as provided in
paragraph (j)(3)(ii) of this section, the number of months included in
a continuous period is determined without regard to the calendar years
in which months included in that period occur. For purposes of
paragraph (j) of this section, a continuous period begins no earlier
than January 1, 2014.
(ii) Continuous period straddling more than one taxable year. If an
individual does not have minimum essential coverage for a continuous
period that begins in one taxable year and ends in the next, for
purposes of applying this paragraph (j) to the first taxable year, the
months in the second taxable year included in the continuous period are
disregarded. For purposes of applying this paragraph (j) to the second
taxable year, the months in the first taxable year included in the
continuous period are taken into account.
(4) Examples. The following examples illustrate the provisions of
this paragraph (j). Unless stated otherwise, in each example the
taxpayer's taxable year is a calendar year and the taxpayer is
ineligible for any of the exemptions described in paragraphs (a)
through (h) of this section for a month.
Example 1. Short coverage gap. Taxpayer D has minimum essential
coverage in 2016 from January 1 through March 2. After March 2, D
does not have minimum essential coverage until D enrolls in an
eligible employer-sponsored plan effective June 15. Under Sec.
1.5000A-1(b), for purposes of section 5000A, D has minimum essential
coverage for January, February, March, and June through December.
D's continuous period without coverage is 2 months, April and May.
April and May constitute a short coverage gap under paragraph
(j)(2)(i) of this section.
Example 2. Continuous period of 3 months or more. The facts are
the same as in Example 1, except D's coverage is not effective until
July 1. D's continuous period without coverage is 3 months, April,
May, and June. Under paragraph (j)(2)(i) of this section, April,
May, and June are not included in a short coverage gap.
Example 3. Short coverage gap following exempt period. Taxpayer
E is incarcerated from January 1 through June 2. E enrolls in an
eligible employer-sponsored plan effective September 15. Under
paragraph (d) of this section, E is exempt for the period January
through June. Under paragraph (j)(2)(ii) of this section, E is
treated as having minimum essential coverage for this period, and
E's continuous period without minimum essential coverage is 2
months, July and August. July and August constitute a short coverage
gap under paragraph (j)(2)(i) of this section.
Example 4. Continuous period covering more than one taxable
year. Taxpayer F, an unmarried individual with no dependents, has
minimum essential coverage for the period January 1 through October
15, 2016. F is without coverage until February 15, 2017. F files his
Federal income tax return for 2016 on March 10, 2017. Under
paragraph (j)(3)(ii) of this section, November and December of 2016
are treated as a short coverage gap. However, November and December
of 2016 are included in the continuous period that includes January
2017. The continuous period for 2017 is not less than 3 months and,
therefore, January is not a part of a short coverage gap.
Example 5. Enrollment following loss of coverage. The facts are
the same as in Example 4 except F loses coverage on June 15, 2017. F
enrolls in minimum essential coverage effective September 15, 2017.
The continuous period without minimum essential coverage in July and
August of 2017 is two months and, therefore, is a short coverage
gap. Because January 2017 was not part of a short coverage gap, the
earliest short coverage gap occurring in 2017 is the gap that
includes July and August.
Example 6. Multiple coverage gaps. (i) The facts are the same as
in Example 5 except F has minimum essential coverage for November
2016. Under paragraph (j)(3)(ii) of this section, December 2016 is
treated as a short coverage gap.
(ii) December 2016 is included in the continuous period that
includes January 2017. This continuous period is two months and,
therefore, January 2017 is the earliest month in 2017 that is
included in a short coverage gap. Under paragraph (j)(2)(iii) of
this section, the exemption under this paragraph (j) applies only to
January 2017. Thus, the continuous period without minimum essential
coverage in July and August of 2017 is not a short coverage gap.
Sec. 1.5000A-4 Computation of shared responsibility payment.
(a) In general. For each taxable year the shared responsibility
payment is the lesser of--
(1) The sum of the monthly penalty amounts for each individual in
the shared responsibility family; or
(2) The sum of the monthly national average bronze plan premiums
for the shared responsibility family.
(b) Monthly penalty amount--(1) In general. Monthly penalty amount
means, for a month that a nonexempt individual is not covered under
minimum essential coverage, 1/12 multiplied by the greater of--
(i) The flat dollar amount; or
(ii) The excess income amount.
(2) Flat dollar amount--(i) In general. Flat dollar amount means
the lesser of--
(A) The sum of the applicable dollar amounts for all individuals
included in the taxpayer's shared responsibility family; or
(B) 300 percent of the applicable dollar amount (determined without
regard to paragraph (b)(2)(iii) of this section) for the calendar year
with or within which the taxable year ends.
(ii) Applicable dollar amount. Except as provided in paragraphs
(b)(2)(iii) and (b)(2)(iv) of this section, the applicable dollar
amount is--
(A) $95 in 2014;
(B) $325 in 2015; or
(C) $695 in 2016.
(iii) Special applicable dollar amount for individuals under age
18. If an individual has not attained the age of 18 before the first
day of a month, the applicable dollar amount for the individual is
equal to one-half of the applicable dollar amount (as expressed in
paragraph (b)(2)(ii) of this section) for the calendar year in which
the month
[[Page 53663]]
occurs. For purposes of this paragraph (b)(2)(iii), an individual
attains the age of 18 on the anniversary of the date when the
individual was born. For example, an individual born on March 1, 1999,
attains the age of 18 on March 1, 2017.
(iv) Indexing of applicable dollar amount. In any calendar year
after 2016, the applicable dollar amount is $695 as increased by the
product of $695 and the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year. For purposes of this paragraph
(b)(2)(iv), the cost-of-living adjustment is determined by substituting
``calendar year 2015'' for ``calendar year 1992'' in section
1(f)(3)(B). If any increase under this paragraph (b)(2)(iv) is not a
multiple of $50, the increase is rounded down to the next lowest
multiple of $50.
(3) Excess income amount--(i) In general. Excess income amount
means the product of--
(A) The excess of the taxpayer's household income over the
taxpayer's applicable filing threshold (as defined in Sec. 1.5000A-
3(f)(2)); and
(B) The income percentage.
(ii) Income percentage. For purposes of this section, income
percentage means--
(A) 1.0 percent for taxable years beginning in 2013;
(B) 1.0 percent for taxable years beginning in 2014;
(C) 2.0 percent for taxable years beginning in 2015; or
(D) 2.5 percent for taxable years beginning after 2015.
(c) Monthly national average bronze plan premium. Monthly national
average bronze plan premium means, for a month for which a shared
responsibility payment is imposed, \1/12\ of the annual national
average premium for qualified health plans that have a bronze level of
coverage, would provide coverage for the taxpayer's shared
responsibility family members who do not have minimum essential
coverage for the month, and are offered through Exchanges for plan
years beginning in the calendar year with or within which the taxable
year ends.
(d) Examples. The following examples illustrate the provisions of
this section. In each example the taxpayer's taxable year is a calendar
year and all members of the taxpayer's shared responsibility family are
ineligible for any of the exemptions described in Sec. 1.5000A-3 for a
month.
Example 1. Unmarried taxpayer without minimum essential
coverage. (i) In 2016, Taxpayer G is an unmarried individual with no
dependents. G does not have minimum essential coverage for any month
in 2016. G's household income is $120,000. G's applicable filing
threshold is $12,000. The annual national average bronze plan
premium for G is $5,000.
(ii) For each month in 2016, under paragraph (b)(2)(ii) of this
section, G's applicable dollar amount is $695. Under paragraph
(b)(2) of this section, G's flat dollar amount is $695 (the lesser
of $695 and $2,085 ($695 x 3)). Under paragraph (b)(3) of this
section, G's excess income amount is $2,700 (($120,000 - $12,000) x
0.025). Therefore, under paragraph (b)(1) of this section, the
monthly penalty amount is $225 (the greater of $58 ($695/12) or $225
($2,700/12)).
(iii) The sum of the monthly penalty amounts is $2,700 ($225 x
12). The sum of the monthly national average bronze plan premiums is
$5,000 ($5,000/12 x 12). Therefore, under paragraph (a) of this
section, the shared responsibility payment imposed on G for 2016 is
$2,700 (the lesser of $2,700 or $5,000).
Example 2. Part-year coverage. The facts are the same as in
Example 1, except G has minimum essential coverage for January
through June. The sum of the monthly penalty amounts is $1,350 ($225
x 6). The sum of the monthly national average bronze plan premiums
is $2,500 ($5,000/12 x 6). Therefore, under paragraph (a) of this
section, the shared responsibility payment imposed on G for 2016 is
$1,350 (the lesser of $1,350 or $2,500).
Example 3. Family without minimum essential coverage. (i) In
2016, Taxpayers H and J are married and file a joint return. H and J
have three children: K, age 21, L, age 15, and M, age 10. No member
of the family has minimum essential coverage for any month in 2016.
H and J's household income is $250,000. H and J's applicable filing
threshold is $24,000. The annual national average bronze plan
premium for a family of 5 (3 adults, 2 children) is $15,000.
(ii) For each month in 2016, under paragraphs (b)(2)(ii) and
(b)(2)(iii) of this section, the applicable dollar amount is $2,780
(($695 x 3 adults) + (($695/2) x 2 children)). Under paragraph
(b)(2)(i) of this section, the flat dollar amount is $2,085 (the
lesser of $2,780 and $2,085 ($695 x 3)). Under paragraph (b)(3) of
this section, the excess income amount is $5,650 (($250,000-$24,000)
x 0.025). Therefore, under paragraph (b)(1) of this section, the
monthly penalty amount is $470.83 (the greater of $173.75 ($2,085/
12) or $470.83 ($5,650/12)).
(iii) The sum of the monthly penalty amounts is $5,650 ($470.83
x 12). The sum of the monthly national average bronze plan premiums
is $15,000 ($15,000/12 x 12). Therefore, under paragraph (a) of this
section, the shared responsibility payment imposed on H and J for
2016 is $5,650 (the lesser of $5,650 or $15,000).
Example 4. Change in shared responsibility family during the
year. (i) The facts are the same as in Example 3, except J has
minimum essential coverage for January through June. The annual
national average bronze plan premium for a family of 4 (2 adults, 2
children) is $10,000.
(ii) For the period January through June 2016, under paragraphs
(b)(2)(ii) and (b)(2)(iii) of this section the applicable dollar
amount is $2,085 (($695 x 2 adults) + (($695/2) x 2 children)).
Under paragraph (b)(2)(i) of this section, the flat dollar amount is
$2,085 (the lesser of $2,085 or $2,085 ($695 x 3)).
(iii) For the period July through December 2016, the applicable
dollar amount is $2,780 (($695 x 3 adults) + (($695/2) x 2
children)). Under paragraph (b)(2) of this section, the flat dollar
amount is $2,085 (the lesser of $2,780 or $2,085 ($695 x 3)). Under
paragraph (b)(3) of this section, the excess income amount is $5,650
(($250,000-$24,000) x 0.025). Therefore, under paragraph (b)(1) of
this section, for January through June the monthly penalty amount is
$470.83 (the greater of $173.75 ($2,085/12) or $470.83 ($5,650/12)).
The monthly penalty amount for July through December is $470.83 (the
greater of $173.75 ($2,085/12) or $470.83 ($5,650/12)).
(iv) The sum of the monthly penalty amounts is $5,650 ($470.83 x
12). The sum of the monthly national average bronze plan premiums is
$12,500 ((($10,000/12) x 6) + (($15,000/12) x 6))). Therefore, under
paragraph (a) of this section, the shared responsibility payment
imposed on H and J for 2016 is $5,650 (the lesser of $5,650 or
$12,500).
Example 5. Eighteenth birthday during the year. (i) In 2016
Taxpayers S and T are married and file a joint return. S and T have
one child, U, who turns 18 years old on June 28. S, T, and U do not
enroll in, and as a result are not eligible to receive benefits
under, affordable employer-sponsored coverage offered by T's
employer for 2016. S and T's household income is $60,000. S and T's
applicable filing threshold is $24,000. The annual national average
bronze plan premium for a family of 3 (2 adults, 1 child) is
$11,000.
(ii) For the period January through June 2016, under paragraphs
(b)(2)(ii) and (b)(2)(iii) of this section, the applicable dollar
amount is $1,737.50 (($695 x 2 adults) + ($695/2) x 1 child)). Under
paragraph (b)(2) of this section, the flat dollar amount is
$1,737.50 (the lesser of $1,737.50 or $2,085 ($695 x 3)).
(iii) For the period July through December 2016, the applicable
dollar amount is $2,085 ($695 x 3). Under paragraph (b)(2) of this
section, the flat dollar amount is $2,085 (the lesser of $2,085 or
$2,085 ($695 x 3)). Under paragraph (b)(3) of this section, the
excess income amount is $900 (($60,000-$24,000) x 0.025). Therefore,
under paragraph (b)(1) of this section, for January through June the
monthly penalty amount is $144.79 (the greater of $144.79
($1,737.50/12) or $75 ($900/12)). The monthly penalty amount for
July through December is $173.75 (the greater of $173.75 ($2,085/12)
or $75 ($900/12)).
(iv) The sum of the monthly penalty amounts is $1,911.24
(($144.79 x 6) + ($173.75 x 6)). The sum of the monthly national
average bronze plan premiums is $11,000 ($11,000/12 x 12).
Therefore, under paragraph (a) of this section, the shared
responsibility payment imposed on H and J for 2016 is $1,911.24 (the
lesser of $1,911.24 or $11,000).
[[Page 53664]]
Sec. 1.5000A-5 Administration and procedure.
(a) In general. A taxpayer's liability for the shared
responsibility payment for a month must be reported on the taxpayer's
Federal income tax return for the taxable year that includes the month.
The period of limitations for assessing the shared responsibility
payment is the same as that prescribed by section 6501 for the taxable
year to which the Federal income tax return on which the shared
responsibility payment is to be reported relates. The shared
responsibility payment is payable upon notice and demand by the
Secretary, and except as provided in paragraph (b) of this section, is
assessed and collected in the same manner as an assessable penalty
under subchapter B of chapter 68 of the Internal Revenue Code. The
shared responsibility payment is not subject to deficiency procedures
of subchapter B of chapter 63 of the Internal Revenue Code. Interest on
this payment accrues in accordance with the rules in section 6601.
(b) Special rules. Notwithstanding any other provision of law--
(1) Waiver of criminal penalties. In the case of a failure by a
taxpayer to timely pay the shared responsibility payment, the taxpayer
is not subject to criminal prosecution or penalty for the failure.
(2) Limitations on liens and levies. If a taxpayer fails to pay the
shared responsibility payment imposed by this section and Sec. Sec.
1.5000A-1 through 1.5000A-4, the Secretary will not file notice of lien
on any property of the taxpayer, or levy on any property of the
taxpayer for the failure.
(3) Authority to offset against overpayment. Nothing in this
section prohibits the Secretary from offsetting any liability for the
shared responsibility payment against any overpayment due the taxpayer,
in accordance with section 6402(a) and its corresponding regulations.
(c) Effective/applicability date. This section and Sec. Sec.
1.5000A-1 through 1.5000A-4 apply for months beginning after December
31, 2013.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 5.The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 6. In Sec. 602.101, paragraph (b) is amended by adding an entry
in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described Control No.
------------------------------------------------------------------------
* * * * *
1.5000A-3............................................... 1545-0074
1.5000A-4............................................... 1545-0074
* * * * *
------------------------------------------------------------------------
Heather C. Maloy,
Acting Deputy Commissioner for Services and Enforcement.
Approved: August 26, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-21157 Filed 8-27-13; 11:15 am]
BILLING CODE 4830-01-P