Individual Mandate Responsibilities Under ACA

October 26, 2015

We are now in the 2nd year of compliance with the individual mandate under the Affordable Care Act.  The Act requires most individuals, including children, to obtain coverage under a qualified health plan.  Failure to maintain coverage results in the assessment of an individual mandate penalty.

New Reporting in 2015

Beginning with the 2015 tax year, all individuals eligible to be covered under an employer sponsored health plan or otherwise covered under an individual policy are required to be given a Form 1095. Form 1095 which will report to the individual, information about the offer of coverage made and the employee’s share of premium. Copies of Form 1095 will be provided to the individual and to the IRS. There are three separate types of Form 1095. Form 1095-A will be issued from the federal or state run Health Insurance Marketplaces; Form 1095-B will be issued by fully insured plans; Form 1095-C will be issued by large employers and self-insured plans.

The Penalty

As noted above, there are penalties for failing to maintain coverage from a qualified health plan. Calculation of the potential penalty is complex. The penalty for no coverage in 2015 is the greater of (1) 2% of a taxpayer’s household income above a threshold defined by the IRS or (2) $325, multiplied by the number of uninsured individuals in your household. The second threshold for the penalty cannot exceed $975 in 2015. The final determination for the maximum amount of the penalty, once the calculations above are performed, compares results to the national average cost of a “bronze” plan for your household. This would be the lowest and least expensive level of qualified coverage in the Marketplace — $2,484 in 2015.

The penalty is assessed only in the months that coverage was not in place. An individual is considered to have qualified coverage in a month if they are enrolled and entitled to receive benefits for at least one day during a month. Further, there is a consecutive grace period each year of less than three months due to a “short coverage gap” exemption. This exemption allows you less than three consecutive months without coverage each year. This coverage gap exemption only applies if coverage is obtained for the remainder of the year.

Premium Tax Credits

If you, as an individual, obtain coverage via the Marketplace, and your employer does not offer you qualifying coverage, your level of income may qualify you for receipt of a subsidy that will assist in paying for the cost of coverage. In general, subsidies are available to individuals and families whose household income for the year is between 100% and 400% of the federal poverty line for their family size.

The existence of coverage under a qualified plan is reported on an individual’s Form 1040. If an advance credit subsidy was received during the year, that amount is reconciled against the credit calculated based on actual income on the return. Any additional credit subsidy due to the taxpayer, or excess credit subsidy due from the taxpayer, is paid as part of your tax liability via the Form 1040.

Coverage for 2016

There is a yearly period when individuals can enroll in a health insurance plan through the Health Insurance Marketplace. For 2016 coverage, the open enrollment period is November 1, 2015 through January 31, 2016. Now is a good time to assess your coverage and determine your action plan for meeting the individual mandate responsibility.

Contact Johnson Price Sprinkle PA if you have questions about
the application of ACA to your household.

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Johnson Price Sprinkle PA is a leading certified public accounting firm in Western North Carolina, providing innovative solutions created specifically for small to mid-sized businesses. With a sixty-year history, JPS has built its practice on providing superior accounting and exceptional service, in taxation, business advisory and assurance, to move clients forward by giving them the power of a national firm with the attention of a community-based one.