IRS Finalizes Regulations On Shared Responsibility Payment For Not Maintaining Minimum Essential Coverage Under ACA

The Internal Revenue Service has issued final regulations relating to the requirement to maintain minimum essential coverage enacted by the Patient Protection and Affordable Care Act (ACA). The final regulations provide guidance to individual taxpayers on the liability under Code Sec. 5000A for the shared responsibility payment for not maintaining minimum essential coverage and largely finalize the rules in proposed regulations issued earlier this year. The final regulations were published in the August 30 Federal Register.

Beginning in 2014, under the ACA, individuals must make a “shared responsibility payment” if they do not have minimum essential health insurance for themselves and their dependents. In the final regulations, the IRS considered comments suggesting changes to the proposed regulations. Consistent with the proposed regulations, the final regulations provide that a person has minimum essential coverage for a month if the person is enrolled under a plan providing such coverage for at least one day during any calendar month. Also, a taxpayer is liable for the shared responsibility payment imposed on an individual who may be claimed as the taxpayer’s dependent, regardless of whether the taxpayer claims a dependency deduction for that person. The special rule for children who are adopted or placed in foster care also is retained. In addition, the final regulations retain the rule that pregnancy-related Medicaid is not considered minimum essential coverage.

The final regulations clarify the definition of the term “household income” as used in Code Sec. 5000A(c)(4)(B). Also addressed are demonstration projects, Medicaid premium assistance programs, Medicaid for the medically needy, the government-sponsored TRICARE program, self-insured group health plans, arrangements to provide employer-subsidized coverage under plans in the individual market, coverage for former employees, plans offered on behalf of employers, government-sponsored programs that are eligible employer-sponsored plans, plans in the individual market, and foreign issuer coverage.

The regulations address exempt individuals, including members of certain religions, noncitizens, incarcerated persons, individuals who cannot afford coverage, members of Indian tribes, persons subject to a short coverage gap during the person’s tax year, and persons claiming certain hardship exemptions. Also discussed is the inapplicability of accuracy-related penalties to shared responsibility payments, since such penalties only apply to underpayments of tax.

The regulations are effective for tax years ending after Dec. 31, 2013.

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