Code Section 5000A
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 5000A | 12/31/2013 | Patient Protection and Affordable Care Act | Excise Tax on Individuals Without Essential Health Benefits Coverage | 17,000 |
Excise Tax on Individuals Without Essential Health Benefits Coverage
Explanation of Provision
Personal responsibility requirement
Beginning January, 2014, non-exempt U.S. citizens and legal residents are required to maintain minimum essential coverage. Minimum essential coverage includes government sponsored programs, eligible employer-sponsored plans, plans in the individual market, grandfathered group health plans and grandfathered health insurance coverage, and other coverage as recognized by the Secretary of HHS in coordination with the Secretary of the Treasury.
Government sponsored programs include Medicare, Medicaid, Children’s Health Insurance Program, coverage for members of the U.S. military,745 veterans health care,746 and health care for Peace Corps volunteers.747 Eligible employer-sponsored plans include: governmental plans,748 church plans,749 grandfathered plans and other group health plans offered in the small or large group market within a State. Minimum essential coverage does not include coverage that consists of certain HIPAA excepted benefits.750 Other HIPAA excepted benefits that do not constitute minimum essential coverage if offered under a separate policy, certificate or contract of insurance include long term care, limited scope dental and vision benefits, coverage for a disease or specified illness, hospital indemnity or other fixed indemnity insurance or Medicare supplemental health insurance.751
Individuals are exempt from the requirement for months they are incarcerated, not legally present in the United States or maintain religious exemptions. Those who are exempt from the requirement due to religious reasons must be members of a recognized religious sect exempting them from self-employment taxes 752 and adhere to tenets of the sect. Individuals residing 753 outside of the United States are deemed to maintain minimum essential overage. If an individual is a dependent 754 of another taxpayer, the other taxpayer is liable for any penalty payment with respect to the individual.
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Penalty
Individuals who fail to maintain minimum essential coverage in 2016 are subject to a penalty equal to the greater of: (1) 2.5 percent of the excess of the taxpayer’s household income for the taxable year over the threshold amount of income required for income tax return filing for that taxpayer under section 6012(a)(1); 755 or (2) $695 per uninsured adult in the household. The fee for an uninsured individual under age 18 is one-half of the adult fee for an adult. The total household penalty may not exceed 300 percent of the per adult penalty ($2,085). The total annual household payment may not exceed the national average annual premium for bronze level health plan offered through the Exchange that year for the household size.
This per adult annual penalty is phased in as follows: $95 for 2014; $325 for 2015; and $695 in 2016. For years after 2016, the $695 amount is indexed to CPI–U, rounded to the next lowest $50. The percentage of income is phased in as follows: one percent for 2014; two percent in 2015; and 2.5 percent beginning after 2015. If a taxpayer files a joint return, the individual and spouse are jointly liable for any penalty payment.
The penalty applies to any period the individual does not maintain minimum essential coverage and is determined monthly. The penalty is an excise tax that is assessed in the same manner as an assessable penalty under the enforcement provisions of subtitle F of the Code.756 As a result, it is assessable without regard to the restrictions of section 6213(b). Although assessable and collectible under the Code, the IRS authority to use certain collection methods is limited. Specifically, the filing of notices of liens and levies otherwise authorized for collection of taxes does not apply to the collection of this penalty. In addition, the statute waives criminal penalties for non-compliance with the requirement to maintain minimum essential coverage. However, the authority to offset refunds or credits is not limited by the provision.
Individuals who cannot afford coverage because their required contribution for employer-sponsored coverage or, with respect to whom, the lowest cost bronze plan in the local Exchange exceeds eight percent of household income for the year are exempt from the penalty.757 In years after 2014, the eight percent exemption is increased by the amount by which premium growth exceeds income growth. For employees, and individuals who are eligible for minimum essential coverage through an employer by reason of a relationship to an employee, the determination of whether coverage is affordable to the employee and any such individual is made by reference to the required contribution of the employees for self-only coverage. Individuals are liable for penalties imposed with respect to their dependents (as defined in section 152). An individual filing a joint return with a spouse is jointly liable for any penalty imposed with respect to the spouse. Taxpayers with income below the income tax filing threshold 758 are also exempt from the penalty for failure to maintain minimum essential coverage. All members of Indian tribes 759 are exempt from the penalty.
No penalty is assessed for individuals who do not maintain health insurance for a period of three months or less during the taxable year. If an individual exceeds the three month maximum during the taxable year, the penalty for the full duration of the gap during the year is applied. If there are multiple gaps in coverage during a calendar year, the exemption from penalty applies only to the first such gap in coverage. The Secretary of the Treasury shall provide rules when a coverage gap includes months in multiple calendar years. Individuals may also apply to the Secretary of HHS for a hardship exemption due to hardship in obtaining coverage.760 Residents of the possessions 761 of the United States are treated as being covered by acceptable coverage.
Family size is the number of individuals for whom the taxpayer is allowed a personal exemption. Household income is the sum of the modified adjusted gross incomes of the taxpayer and all individuals accounted for in the family size required to file a tax return for that year. Modified adjusted gross income means adjusted gross income increased by all tax-exempt interest and foreign earned income. 762
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745- 10 U.S.C. sec. 55 and 38 U.S.C. sec. 1781.
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746- Section 5000A is amended by Pub. L. No. 111–173 to clarify that minimum essential coverage includes any health care program under section 17 or 18 of Title 38 of the United States Code, as determined by the Secretary of Veterans Affairs, in coordination with the Secretary of HHS and the Secretary of Treasury.
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747- 22 U.S.C. sec. 2504(e).
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748- ERISA sec. 3(32).
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749- ERISA sec. 3(33).
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750- 42 U.S.C. sec. 300gg–91(c)(1). HIPAA excepted benefits include: (1) coverage only for accident, or disability income insurance; (2) coverage issued as a supplement to liability insurance; (3) liability insurance, including general liability insurance and automobile liability insurance; (4) workers’ compensation or similar insurance; (5) automobile medical payment insurance; (6) credit-only insurance; (7) coverage for on-site medical clinics; and (8) other similar insurance coverage, specified in regulations, under which benefits for medical care are secondary or incidental to other insurance benefits.
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751- 42 U.S.C. sec. 300gg–91(c)(2–4).
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752- Sec. 1402(g)(1).
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753- Sec. 911(d)(1).
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754- Sec. 152.
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755- Generally, in 2010, the filing threshold is $9,350 for a single person or a married person filing separately and is $18,700 for married filing jointly. IR–2009–93, Oct. 15, 2009.
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756- IRS authority to assess and collect taxes is generally provided in subtitle F, ‘‘Procedure and Administration’’ in the Code. That subtitle establishes the rules governing both how taxpayers are required to report information to the IRS and pay their taxes as well as their rights. It also establishes the duties and authority of the IRS to enforce the Code, including civil and criminal penalties.
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757- In the case of an individual participating in a salary reduction arrangement, the taxpayer’s household income is increased by any exclusion from gross income for any portion of the required contribution to the premium. The required contribution to the premium is the individual contribution to coverage through an employer or in the purchase of a bronze plan through the Exchange.
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758- Generally, in 2010, the filing threshold is $9,350 for a single person or a married person filing separately and is $18,700 for married filing jointly. IR–2009–93, Oct. 15, 2009.
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759- Tribal membership is defined in section 45A(c)(6).
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760- Sec. 1311(d)(4)(H).
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761- Sec. 937(a).
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762- Sec. 911.
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