Will You Be Exempt from the Individual Mandate?

IRS DEADLINE FOR PUBLIC COMMENT: May 2, 2013

Comment online: www.regulations.gov (IRS REG-148500-12)

PUBLIC HEARING – May 3, 2013 at 10:00 a.m.

IRS Auditorium, Internal Revenue Bldg, 1111 Constitution Ave. NW, Wash DC.

Starting on page 8 of the 73-page proposed IRS rule to implement the mandate:

"[The federal health care reform law] provides that an individual is exempt for a month for which the individual lacks access to affordable minimum essential coverage. For this purpose, an individual lacks access to affordable coverage if the individual's required contribution (determined on an annual basis) for minimum essential coverage exceeds a percentage (8 percent for 2014) of the individual's household income for the most recent taxable year for which the Secretary of Health and Human Services, in consultation with the Secretary [of Treasury], determines information is available. [bolded emphasis added.]

"In general, [the law] defines a taxpayer's household income as the sum of the taxpayer's modified adjusted gross income and the modified adjusted gross income of any other member of a taxpayer's family (that is, individuals for whom the taxpayer properly claims a deduction...) who are required to file a Federal income tax return. [bolded emphasis added]

“Under [the law], modified adjusted gross income means adjusted gross income...increased by amounts excluded from gross income under section 911 and tax-exempt interest a taxpayer receives or accrues in the taxable year. ...[M]odified adjusted gross income...does not include Social Security benefits that are not includable in gross income. For purposes of determining the affordability of minimum essential coverage under [the law], the taxpayer's household income is increased by the portion of the required contribution made through a salary reduction arrangement and excluded from gross income. [bolded emphasis added]

"For purposes of determining household income, a taxpayer's family includes all individuals for whom  the taxpayer properly claims a personal exemption deduction... Taxpayers may claim a personal exemption deduction for themselves, a spouse, and each of their dependents. ...[A] taxpayer's dependent may be a qualifying child or qualifying relative, including an unrelated individual who lives with the taxpayer.

"For an employee eligible to purchase coverage under an eligible employer-sponsored plan, the required contribution for purposes of the exemption under [the law] is the employee's share of the annual premium for self-only coverage. For an individual eligible to purchase coverage under an eligible employer-sponsored plan because the individual is related to an employee, the determination of whether the individual's coverage is affordable is made by reference to the employee's required contribution. [In other words, family coverage is considered “affordable” regardless of the percent of household income if the employee’s self-only coverage is classified as affordable]

“For all individuals who are ineligible to purchase coverage under an eligible employer-sponsed plan, the required contribution is the annual premium for the lowest cost bronze plan available on the Exchange where the individual lives reduced by the credit allowable under section 36B for the taxable year (determined as if the indivdual enrolled in a plan through such Exchange for the entire taxable year). [emphasis added.]

“[The law] provides that an individual is exempt for a month included in a calendar year if the individual’s household income for the most recent taxable year for which informaiton is available is less than the amount of gross income specified in section 6012(a)(1) for the taxpayer. Section 6012(a)(1) provides, for each filing status, gross income threshold above which individuals are required to file Federal income tax returns.

“As described in this preamble, income-based exemptions under [the law] rely upon household income for the most recent taxable year that the Secretary of Health and Human Services, after consultation with the Secretary of Treasury, determines is available. The Secretary of Health and Human Services, after consultation with the Secretary of the Treasury, determined that the household income for these exemptions that is available and relevant is the household income for the year for which an exemption is being claimed…The determination by the Secretary of Health and Human Services is reflected in the proposed regulations.”

[…]

§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 time for assessing the shared responsibility payment is the same as that prescribed by section 6501 for the taxable year to which the Federal72

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. Therefore, 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 §§1.5000A-1 through 1.5000A-4, the Secretary will not file notice of lien with respect to any property of the taxpayer, or levy on any such property with respect to such 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).