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IRS Issues Final Regs On Obamacare Tax Credits, Penalties

by Mike Godfrey,, Washington

01 December 2014

The United States Internal Revenue Service (IRS) has recently released revenue procedures, final regulations and a notice on the application of certain health care provisions within the Affordable Care Act (ACA), including the premium tax credit and the individual employee mandate.

The revenue procedures issued by the IRS, effective for tax years beginning after December 31, 2015, include the indexing adjustments used to update the applicable percentage tables for determining a taxpayer's premium tax credit, which are worth USD5,000 per year on average and are designed to defray the cost of purchasing health insurance for lower income households.

The IRS also provided final regulations relating to the ACA's requirement for individuals to maintain "minimum essential" health insurance coverage. Those individuals who do not comply this individual "employee mandate" will have to make "shared responsibility" payments, or tax penalties, to the IRS.

For individuals, the tax penalty in 2014 will be equal to the greater of USD95 plus USD47.50 per child, or one percent of their taxable income up to the average national cost of getting basic insurance coverage for all family members, whichever is the greater. In 2015, the calculation will be USD325 or two percent, and, from 2016 onwards, USD695 or 2.5 percent.

The regulations contain, for example, guidance on the definition of minimum essential coverage for medically-needy individuals under Medicaid, and how amounts paid as part of "cafeteria plans" (flexible benefit packages that allow employees to divert some of their pre-tax pay toward fringe benefits) should be considered in determining whether health coverage is affordable.

Finally, an IRS Notice identified a complete list of the hardship exemptions from the individual shared-responsibility penalty for which individuals are not required to provide exemption certificates, in tax years beginning after December 31, 2013.

ACA rules generally require individuals to obtain certificates from health exchanges to prove to the IRS that they are exempt from the requirement to obtain health care coverage because they qualify under a hardship exemption. However, the final rules have permitted the Department of Health and Human Services and the IRS to issue guidance exempting certain categories of individuals from the requirement to obtain certificates.

TAGS: individuals | compliance | tax | tax compliance | law | insurance | fringe benefits | employees | tax credits | Internal Revenue Service (IRS) | tax authority | health care | legislation | United States | regulation | penalties | individual income tax

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