Quickfinder · Reporting Requirements TAX PLANNING Health Care Reform Quickfinder ® Handbook U.S. Design Patent No. D811,476 Yes Generally, If Generally, Generally, Generally, Generally,

Quickfinder ®

Health Care Reform Quickfinder® Handbook

(2019 Edition)

Updates for Final Form 8965 Instructions and Other IRS Guidance

Instructions: This packet contains “marked up” changes to the pages in the Health Care Reform Quickfinder® Handbook that were affected by final Form 8965 Instruc-tions, which were released after the Handbook was published. Additionally, changes were made based on other IRS guidance issued after the Handbook was published. To update your Handbook, you can make the same changes in your Handbook or print the revised page and paste over the original page.

Exemptions From the Individual Shared Responsibility PenaltyThis table lists the exemptions from the individual shared responsibility penalty available for 2018. Exemptions may be granted by the Marketplace or claimed on an individual’s income tax return. If granted by the Marketplace, an exemption certificate number is required for reporting the exemption on Form 8965 filed with the individual’s tax return. If claimed in Part III of Form 8965, a letter code must be entered for the exemption. See Individuals Who are Exempt From the Shared Responsibility Penalty on Page 1-1 for a detailed discussion of the available exemptions.

ExemptionGranted By Marketplace

Claimed When Filing Tax Return

Exemption Certificate

Number (ECN) Required 1

Form 8965, Part III Code 1

Gross income or household income below applicable threshold for filing a tax return No Yes2 No

Unaffordable coverage based on actual household income for the year No Yes No A

Unaffordable coverage based on projected household income for the year, as determined by the Marketplace Yes No Yes3

Aggregate cost of self-only employer-sponsored coverage for two or more family members and the cost of any available employer-sponsored family coverage are unaffordable No Yes No G

Certain U.S. citizens or resident aliens living abroad or a bona fide resident of a U.S. territory No Yes No C

Not lawfully present in the U.S., and not a U.S. citizen or U.S. national No Yes No C

Short coverage gap for less than three consecutive months No Yes No B

Member of certain religious sects Yes No Yes3

Member of a health care sharing ministry No Yes No D

Member of a federally-recognized Indian tribe No4 Yes No4 E

Eligible for services through an Indian health care provider or Indian Health Service No4 Yes No4 E

Incarcerated after disposition of charges No Yes No F

Resident of a state that did not expand Medicaid and has household income below 138% of FPL No Yes No G

The marketplace found that the individual would have been determined ineligible for Medicaid solely because the state in which the individual resided did not expand Medicaid Yes No Yes3

Member of tax household born, adopted or died during the year No Yes No H5

Enrolled in certain limited-benefit Medicaid programs Yes No Yes3

General hardship that prevented taxpayer from obtaining coverage in a QHP No6 Yes No6 G1 If the full-year health care coverage or exempt box on page 1 of the 2018 Form 1040 can be checked, exemptions do not have to be reported on Form 8965.2 An individual does not have to file an income tax return to claim this exemption. It is automatic if he qualifies. However, if a return is filed for another reason (for example,

to get a refund of FITW or claim the earned income credit), Form 8965 must be filed with the return to claim the exemption. It is reported in Part II of Form 8965.3 The exemption must be reported in Part I of Form 8965 and an ECN number provided.4 The coverage exemptions for members of Indian tribes and those eligible for services through an Indian health care provider or Indian Health Service are no longer granted

by the Marketplace, except in Connecticut.5 Form 8965 should be filed to identify the months before and including the month an individual was born or adopted or the months after an individual dies, only if another

type of coverage exemption needs to be claimed on Form 8965.6 A general hardship exemption may have been issued by the Marketplace. If so, the exemption should be reported in Part I of Form 8965 and an ECN number provided.

No

2019 Edition

Individual MandatePremium Tax CreditEmployer Mandate

Reporting Requirements

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the full-year health care coverage or exempt box on page 1 of Form 1040 is checked and Form 8965 does not have to be filed.

However, if a marketplace granted a lifetime coverage exemption, and the individual’s status has not changed, the exemption and ECN should be reported in Part 1 of Form 8965, if the form is required to be completed for the year.

2019 Edition | Health Care Reform Quickfinder® Handbook 1-1Replacement Page 1/2019

Health Insurance Mandate for Individuals

Overview

Patient Protection and Affordable Care ActThe Patient Protection and Affordable Care Act (P.L. 111-148), signed March 23, 2010, as amended by the Health Care and Edu-cation Reconciliation Act, signed March 31, 2010, is collectively referred to as the Affordable Care Act (ACA).Individual mandate. The ACA requires most individuals to have health insurance coverage that meets certain standards, obtain an exemption from the mandate or pay a penalty. Under this provision, individuals must maintain minimum essential coverage (MEC) for themselves and their dependents. See Minimum Essential Cover-age (MEC) Chart on Page 1-9. Those who do not maintain MEC or qualify for an exemption may be required to pay a penalty (that is, the individual shared responsibility penalty) for each month of noncompliance. Law Change Alert: The 2017 Tax Cuts and Jobs Act reduces the individual shared responsibility penalty to zero for months be-ginning after December 31, 2018. However, the penalty remains in effect for each month of 2018.Taxpayers who have MEC for each month of a year and whose family members have MEC for each month they are part of the tax household can check the box on page 1 of Form 1040 for full-year coverage. If the box cannot be checked, the flowchart and worksheets in the Form 8965 (Health Coverage Exemptions) instructions are used to calculate the amount of the individual shared responsibility payment due with the return because one or more family members did not have the required MEC or did not have an exemption for each month of the year.Exemptions. Some individuals are eligible for an exemption from the requirement to maintain MEC. An individual is not subject to the individual shared responsibility penalty for any month that he qualifies for an exemption. Exempt individuals complete Form 8965 to show they are not subject to a penalty for some or all months of the year. See a copy of Form 8965 and its instructions starting on Page 1-15.Insurance marketplaces. To assist individuals in obtaining health insurance coverage that meets the individual mandate requirements, the ACA provides for state insurance market-places. Individuals can purchase health insurance through the state marketplaces. See Tab 2 for further discussion of the state marketplaces.

Federal subsidies. Certain low-income and moderate-income individuals and families are able to receive federal subsidies to help pay for premiums and cost-sharing if they purchase cover-age through a state insurance marketplace. See Tab 3 for further discussion of the premium tax credit and cost-sharing-reduction subsidy.

whO is required tO have health insurance?

Most individuals must ensure that they, and their dependents have MEC for each month of the year or qualify for an exemption. (IRC Sec. 5000A)The individual mandate generally applies to U.S. citizens and permanent residents. Additionally, any foreign nationals residing in the U.S. long enough during a calendar year to qualify as resi-dent aliens for income tax purposes are subject to the mandate. However, foreign nationals who do not qualify as resident aliens are not subject to the mandate, even if they are required to file a federal income tax return.

individuals whO are exempt FrOm the shared respOnsibility penalty

Applicable individuals who do not maintain MEC for one or more months in 2018 generally are subject to the shared responsibility penalty. However, an individual who does not maintain MEC is not subject to the individual shared responsibility penalty for any month during which he qualifies for one or more of the following exemptions for any day during the month:• Member of a recognized religious sect who has a religious con-

science exemption.• Member of a health care sharing ministry.• Incarcerated individual, other than incarcerated pending the

disposition of charges.• Member of a federally recognized Indian tribe.• Individual qualifying for services through an Indian health care

provider or the Indian Health Service.• Individual with a short coverage gap.• Individual whose household income or gross income is below

the threshold for filing an income tax return.• U.S. citizen living abroad or noncitizen meeting certain criteria.• Individual who was born or adopted, or who died during the

calendar year.• Individual ineligible for Medicaid solely because the state of

residence did not participate in Medicaid expansion.• Individual with household income below 138% of the applicable

year federal poverty line (FPL) for the family size who resides in a state that did not expand Medicaid coverage.

• Individual enrolled in certain limited benefit Medicaid or CHIP programs that are not considered MEC.

• Individual who qualifies for a general hardship exemption.• Individual who could not afford coverage based on actual house-

hold income.• Individual who could not afford coverage based on projected

household income.• Individual in a family where the aggregate cost of self-only cov-

erage for two or more employed individuals is unaffordable and family coverage is unaffordable. Note: See the chart Determining Exemptions to the Individual Shared Responsibility Penalty on the front cover of this Handbook.

Tab 1 TopicsOverview ................................................................. Page 1-1Who Is Required to Have Health Insurance?.......... Page 1-1 Individuals Who Are Exempt From the Shared

Responsibility Penalty .......................................... Page 1-1What Is the Required Health Insurance

Coverage? ............................................................ Page 1-8Individual Shared Responsibility Penalty .............. Page 1-10Calculating the Shared Responsibility Penalty

(Payment) ........................................................... Page 1-11Calculating the Individual Shared Responsibility

Penalty Worksheet (2018) .................................. Page 1-14Form 8965 (Health Coverage Exemptions) .......... Page 1-15Instructions for Form 8965 .................................... Page 1-16

However, depending on the specific circumstances, the form may not have to be filed for 2018. See Claiming an Exemption on Page 1-2 and

Generally, exempt

1-2 2019 Edition | Health Care Reform Quickfinder® Handbook Replacement Page 1/2019

Religious ExemptionsA religious conscience exemption is only granted to a member of a recog-nized religious sect or division as described in IRC Sec. 1402(g)(1), and an adherent of established tenets or teachings of such a sect or division because he is conscientiously opposed to acceptance of benefits of any private or public insurance that makes payments in the event of death, disability, old-age or retirement or makes payments toward the cost of, or provides services for, medical care (including the benefits of any insurance system established by the Social Security Act). [IRC Sec. 5000A(d)(2)(A); Reg. 1.5000A-3(a)]This exemption may be granted only if the application contains or is ac-companied by evidence of an individual’s membership in, and adherence to the tenets or teachings of, the sect or division thereof and his waiver of all benefits and other payments under Titles II and XVIII of the Social Security Act on the basis of his wages and self-employment income as well as all benefits and other payments to him on the basis of the wages and self-employment income of any other person.An exemption may not be granted to any individual if any benefit or other payment under Titles II and XVIII of the Social Security Act became pay-able or, but for Section 203 or 222(b) of the Social Security Act, would have become payable at or before the time of the filing of such waiver.A religious conscience exemption certification is only issued by a state insurance marketplace and not by the IRS [Reg. 1.5000A-3(a)(2)]. The marketplace will accept a copy of an approved IRS Form 4029 (Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits) as proof that an individual qualifies for this exemption. Note: An individual who is a member of a sect that is not on the SSA approved list (that is, the sect has not received an approved Form 4029) does not qualify for this exemption.A religious conscience exemption issued for an adult age 21 or older is valid until the individual notifies the marketplace that he is no longer a member of the religious sect [HHS Reg. 45 CFR 155.605(c)(2)]. There-fore, an individual does not need to reapply for this exemption each year. Exemptions issued for children are valid until the month after their 21st birthday. At that time, the individual must submit a new application as an adult to maintain the exemption.An individual must report the religious conscience exemption each year in Part I of Form 8965 filed with his federal income tax return. The Exemp-tion Certificate Number (ECN) received from the marketplace when the exemption was granted is entered in column (c) of Part I. See a copy of Form 8965 and its instructions starting on Page 1-15. Law Change Alert: A provision in the Support for Patients and Commu-nities Act will allow a religious exemption beginning in 2019 for individuals who are members of a religious sect or division not described in IRC Sec. 1402(g)(1) who rely solely on a religious method of healing, and for whom the acceptance of medical health services would be inconsistent with their religious beliefs. Information on how this exemption will be claimed was not available when this Handbook was published.

Health Care Sharing MinistryA health care sharing ministry is an organization described in IRC Sec. 501(c)(3) and exempt from taxation under IRC Sec. 501(a) whose mem-bers share a common set of ethical or religious beliefs and share medical expenses among members in accordance with those beliefs and without regard to the state in which a member resides or is employed.The members must retain membership even after they develop a medical condition.

The organization (or a predecessor of the organization) (1) must have been in existence at all times since December 31, 1999, (2) medical expenses of its members must have been shared continuously and without interrup-tion since at least December 31, 1999 and (3) an annual audit must be performed by an independent certified public accounting firm in accordance with generally accepted accounting principles and made available to the public upon request. [Reg. 1.5000A-3(b)(2)]The health care sharing ministry exemption can be claimed by complet-ing Part III of Form 8965 when filing a federal income tax return. Before September 1, 2016, individuals could also be granted this exemption by a marketplace. Individuals who received this exemption from a marketplace and have an exemption certificate continue to report the exemption in Part I of Form 8965 for as long as the exemption is valid. See a copy of Form 8965 and its instructions starting on Page 1-15.

Incarcerated IndividualAn individual is an exempt individual for a month that includes a day on which the individual is incarcerated. The term incarcerated means confined, after the disposition of charges, in a jail, prison or similar penal institution or correctional facility [Reg. 1.5000A-3(d)(2)]. For 2018, this exemption is claimed on the individual’s federal income tax return filed for the year by completing Part III of Form 8965. See a copy of Form 8965 and its instruc-tions starting on Page 1-15.

Individuals Who Cannot Afford CoverageAn individual is exempt for a month in which he lacks affordable coverage [Reg. 1.5000A-3(e)]. An individual lacks affordable coverage in a month if the individual’s required contribution (determined on an annual basis) for MEC for the month exceeds 8.05% in 2018 of the individual’s household income. An individual’s household income is increased by any amount of the required contribution made through a salary reduction arrangement that is excluded from gross income by any individual whose MAGI is included in household income. This is referred to as adjusted household income. [Reg. 1.5000A-3(e)(1)]The exemption for unaffordable coverage based on actual household income is claimed in Part III of Form 8965 filed with an individual’s income tax return. An exemption for unaffordable coverage based on projected income (see Using projected household income instead of actual house-hold income on Page 1-4) is reported in Part I of Form 8965. See a copy of Form 8965 and its instructions starting on Page 1-15.Household income. Household income for purposes of the individual mandate is the taxpayer’s (and, if the taxpayer files a joint return, the taxpayer’s spouse’s) modified adjusted gross income (MAGI), plus the aggregate MAGIs of every individual who the taxpayer properly claims as a dependent and who is required to file a tax return for that tax year. [IRC Sec. 5000A(c)(4)(B); Reg. 1.5000A-1(d)(10)]Modified adjusted gross income (MAGI). For Section 5000A purposes, MAGI means AGI increased by any amount excluded from gross income under IRC Sec. 911 (the foreign earned income exclusion) and any amount of tax-exempt interest received or accrued by the taxpayer during the tax year. [IRC Sec. 5000A(c)(4)(C)]Required contribution for employees eligible for coverage under an employer-sponsored plan. When determining if coverage is considered affordable, the required contribution for an employee eligible for coverage through an eligible employer-sponsored plan is the portion of the annual premium that the employee would pay (whether through salary reduction or otherwise) for the lowest cost

If Form 8965 must be completed because the full-year health care cov-erage or exempt box on page 1 of Form 1040 cannot be checked, the

, and if the form must be filed because the full-year health care coverage or exempt box

on page 1 of Form 1040 cannot be checked

If Form 8965 must be filed because the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked, the

, if the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked

Claiming an ExemptionA taxpayer generally reports an exemption on Form 8965, which is filed with the individual’s tax return. For tax year 2018, Form 8965 may not have to be completed for an individual to claim an exemption. A taxpayer can check the full-year health care coverage or exempt box on page 1 of the 2018 Form 1040 if the taxpayer, the taxpayer’s spouse (if filing jointly) and anyone the taxpayer is claiming (or can claim) as a dependent had qualifying health coverage or a coverage exemption (or a combination of coverage and exemptions) for every month of the year. The full-year box can be checked if there are individuals who were not part of the taxpayer’s tax household for every month of the year, as long as the individual had coverage or an exemption for every month he was part of the tax household. Taxpayers who qualify to check this box do not have to file Form 8965 to claim an exemption.Individuals who cannot check the full-year health care coverage or exempt box must complete and file Form 8965 with their individual income tax re-turn to claim exemptions for specific members of the tax household. The practitioner must determine if an individual qualifies for an exemption, which exemption(s) he qualifies for and if the exemption is applicable for every month of the year or only certain months.

If Form 8965 must be completed because the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked,

the individual reports the religious conscience exemption

if Form 8965 must be filed because the full-year health care coverage or exempt box on

page 1 of Form 1040 cannot be checked,


Generally, the applicable plan is the single lowest-cost bronze plan available in the individual market through the marketplace serving the rating area in which the individual resides that would cover the taxpayer (and taxpayer’s spouse, if filing jointly), and all individuals in the individual’s tax household who are claimed as dependents on the taxpayer’s tax return and who are not otherwise exempt nor eligible for coverage under an eligible employer-sponsored plan [Reg. 1.5000A-3(e)(4)(ii)]. Some marketplaces may not of-fer bronze plans. Individuals in those areas use the lowest-cost metal level plan available in their area (for example, a silver plan) that will cover the required family members. (IRS Notice 2017-74)An individual’s tax household is comprised of the taxpayer, the taxpayer’s spouse (if filing jointly) and any individual who is claimed (or could be claimed) as a dependent on the taxpayer’s federal income tax return.If the marketplace serving the rating area where the taxpayer resides does not offer a single bronze plan that would cover all such individuals, the premium for the applicable plan is the sum of the premiums for the lowest-cost bronze plans offered through the marketplace serving the rating area where one or more of the individuals reside that would, in the aggregate, cover all such individuals.Annualized required contribution. For each individual, afford-ability is determined separately for each period described that is less than a 12-month period. Coverage under a plan is considered affordable for a part-year period if the annualized required contri-bution for coverage under the plan for the part-year period does not exceed the required contribution percentage of the individual’s household income for the tax year. The annualized required contribution is calculated as follows:

Required contribution for the part-year period

× 12Number of months in the part-year period

during the calendar year

Note: Only full calendar months are included in the computa-tion.

Example: Erin, an unmarried individual with no dependents, is ineligible to enroll in any MEC other than coverage in the individual market for all months of 2018. The annual premium for the lowest-cost bronze self-only plan in Erin’s rating area (her applicable plan) is $5,000. Erin’s 2018 household income is $40,000.If Erin enrolled in the coverage, her premium tax credit for 2018 would be $1,500. Therefore, her net premium cost would be $3,500 ($5,000 – $1,500). Because this amount is more than 8.05% of her 2018 household income ($3,220), Erin is eligible for the unaffordable coverage exemption for 2018. The premium tax credit is discussed in Tab 3.

Using projected household income instead of actual house-hold income. The previous discussion used actual 2018 house-hold income to determine if insurance was affordable. Actual household income, of course, is not available until the individual is filing his income tax return. However, the decision to enroll in employer-sponsored insurance or in an individual policy generally is made before the beginning of the calendar year, when actual household income is not known. HHS and the IRS allow taxpay-ers to apply for an unaffordability exemption from the marketplace based on an affordability determination using projected income.When using projected income to determine affordability, the employer-sponsored coverage must provide more than MEC. It must be a plan that provides minimum value (see Determining if Coverage Provides MV on Page 5-3).The exemption for unaffordable coverage based on projected household income is granted by the state marketplaces. Individu-als generally must apply for this exemption before the last date on

which they can enroll in a QHP through the state marketplace and have coverage for the next calendar year (that is, by December 15, 2017 for a 2018 exemption). The exemption is reported by entering the ECN in Part I of Form 8965 filed with the individual’s federal income tax return. See a copy of Form 8965 and its instructions starting on Page 1-15.

Household Income Below the Filing ThresholdAn individual is exempt from the shared responsibility penalty for any tax year for which the individual’s household income is less than the applicable filing threshold [IRC Sec. 5000A(e)(2); Reg. 1.5000A-3(f)]. The applicable filing threshold is the amount of gross income that triggers an individual’s requirement to file a federal income tax return under IRC Sec. 6012(a)(1). The requirement to file a federal tax return depends on filing status, age and types and amounts of income.For a table with the threshold income amounts for filing a tax return based on the an individual’s age and filing status, see Minimum Income Required to File an Income Tax Return on Page 1-5.An individual does not have to file an income tax return to qualify for this exemption. However, if a tax return is filed, Form 8965 should be completed with the exemption claimed on line 7 in Part II of Form 8965. See a copy of Form 8965 and its instructions starting on Page 1-15.

Gross Income Below the Filing Threshold Any individual who cannot be claimed as a dependent by another individual and whose gross income for a tax year is below the filing requirement threshold to file a federal income tax return is an exempt individual for the entire tax year. [HHS Reg. 45 CFR 155.605(e)(1)]Gross income generally means money, goods, property and services received subject to income tax [IRC Sec. 61(a)]. It does not include nontaxable income (such as tax-exempt interest). Only the taxable portion of social security benefits is included. For sales of prop-erty, gross income is the amount realized in excess of basis [Reg. 1.61-6(a)]. Gross income also includes gain from the sale of a prin-cipal residence that is otherwise excluded under IRC Sec. 121 (that is, the excluded gain needs to be included as gross income) [IRC Sec. 6012(c)]. Income from sources outside the U.S. and gains, but not losses, that are reported on Form 8949 or Schedule D (Form 1040) also are included in an individual’s gross income. Income from a business [which includes income reported on Schedule C (Form 1040), line 7, or Schedule F (Form 1040), line 9] is included in gross income. When calculating gross income, in-come is not reduced by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9. An individual’s gross income may not be the same as his household income. An individual does not have to file an income tax return to qualify for this exemption. However, if a tax return is filed, Form 8965 should be completed with the exemption claimed on line 7 in Part II of Form 8965. See a copy of Form 8965 and its instructions starting on Page 1-15.

Individuals Not Eligible for Medicaid in Certain StatesThe ACA generally expanded Medicaid coverage to individuals whose MAGI (as determined for premium tax credit purposes under Section 36B; see Tab 3) did not exceed 138% of the ap-plicable year federal poverty line (FPL). However, some states did not expand Medicaid coverage. An individual who is not eligible for Medicaid solely because the state in which he resides did not

Continued on Page 1-6

If Form 8965 must be completed because the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked, the

If a taxpayer qualifies for this exemption, it applies for the entire tax year for the taxpayer and all members of the taxpayer’s tax household. If a tax return is filed by the taxpayer, the exemption is claimed by checking the full-year health care coverage or exempt box on page 1 of the

2018 Form 1040. Form 8965 does not have to be filed.

If a taxpayer qualifies for this exemption, it applies for the entire tax year for the taxpayer and all members of the taxpayer’s tax household. If a tax return is filed by the taxpayer, the exemption is claimed by checking the full-year health care coverage or exempt box on page 1 of the 2018 Form 1040. Form 8965 does not have to be filed.


participate in the Medicaid expansion can apply for an exemption from the state marketplace by submitting the hardship exemption form. If the marketplace grants the exemption, it is reported in Part I of Form 8965.Alternatively, an individual with household income below 138% of the applicable year FPL, who at any time during the year resided in a state that didn’t expand Medicaid, can claim an exemption when filing his federal income tax return. The exemption is claimed by completing Part III of Form 8965. See a copy of Form 8965 and its instructions starting on Page 1-15.

Birth, Adoption or Death of an Individual During the YearA taxpayer is subject to the individual shared responsibility penalty for a child born during the year only for the full months that the child is alive. Therefore, the child is an exempt individual for the month of birth. As long as the child has appropriate coverage for all months after the birth month, he is considered to have MEC for the entire year. Similarly, when a child is adopted, the parents are subject to the penalty only for the full months after the date of adoption. As long as the child has appropriate coverage during each full month after the month of adoption, he is considered to have full-year coverage.When an individual dies during the year, he is considered to have coverage for the entire year, if he had MEC for all months in the year before the month of his death. Note: No documentation is required to be filed with the indi-vidual’s federal income tax return, but the IRS may later request documentation as proof that the individual shared responsibility penalty is not applicable for certain months. Taxpayers should keep copies of applicable documents in case the IRS requests them.If all members of the tax household (including a member born, adopted or who died during the year) have MEC for each full month they are a part of the tax household, then Form 8965 does not need to be filed (unless another coverage exemption applies). However, if an individual who was born or adopted or who died during the year did not have MEC for the applicable period and qualified for an exemption for one or more of those months, Part III of Form 8965 must be completed to show the months for which an exemption is allowed. See a copy of Form 8965 and its instructions starting on Page 1-15.

Nonresidents, Bona Fide Residents of a U.S. Territory and NoncitizensAn individual who is not lawfully present in the U.S. is exempt from the health insurance mandate. For example, an immigrant with a deferred action for childhood arrival (DACA) status is not subject to the mandate. An individual who is a bona fide resident of a U.S. possession or territory is also exempt. Additionally, a nonresident alien, including a dual-status alien in the first year of residency, and a nonresident or dual-status alien who files a joint income tax return with a U.S. spouse, is not subject to the individual mandate.U Caution: The exemption does not apply to a nonresident alien who meets certain presence requirements during the calendar year and elects to be treated as a resident alien.These exemptions are reported in Part III of Form 8965. See a copy of Form 8965 and its instructions starting on Page 1-15.

U.S. Citizens or Resident Aliens Residing Outside the U.S.Any U.S. citizen or resident alien who resides outside the U.S. and meets either the physical presence test or bona fide residence test

for a month is eligible for a coverage exemption. This exemption is reported in Part III of Form 8965.

Individual Enrolled in Certain Limited Benefit Medicaid ProgramsCertain Medicaid programs are not considered MEC. However, individuals enrolled in the following limited-benefit Medicaid/CHIP programs in certain states may qualify for an exemption from the in-dividual mandate for the months they are enrolled in the coverage:• Medicaid coverage that is only for pregnancy-related services

that has not been recognized as MEC by HHS.• Medicaid coverage provided to a medically needy individual that

has not been recognized as MEC by HHS.• Spend-down Medicaid coverage.The exemption is applied for by submitting a hardship exemption application to the state marketplace. If the marketplace approves the exemption, it is reported in Part I of Form 8965.

Individual Unable to Renew Coverage in Place as of January 1, 2014Many individuals who had coverage before 2014 that does not conform to the Affordable Care Act’s market reform standards (see Tab 9) wanted to continue that coverage because they found new coverage that meets the market reform standards to be too expensive. If allowed by the state, a noncompliant policy could be extended through December 2018, if renewed on or before October 1, 2018. For individuals in states in which this noncompliant coverage is cancelled, individuals may be able to apply for a hardship exemption. Documentation must be provided to show that the coverage was cancelled and current insurance offered is not affordable.Individuals who do experience the cancellation of noncompliant coverage are eligible to enroll in a catastrophic plan through the individual marketplace, even if they do not otherwise meet the qualifications.

Members of Indian TribesAn applicable individual is exempt from the shared responsibility penalty for any month that includes a day on which the individual is a member of an Indian tribe [Reg. 1.5000A-3(g)]. The term Indian tribe means any Indian tribe, band, nation, pueblo or other organized group or community, including any Alaska Native village or regional or village corporation, as defined in, or established pursuant to, the Alaska Native Claims Settlement Act that is rec-ognized as eligible for the special programs and services provided by the U.S. to Indians because of their status as Indians under IRC Sec. 45A(c)(6).This exemption generally can be claimed in Part III of Form 8965 when filing an income tax return. However, individuals residing in Connecticut may obtain this ex-emption from the state marketplace. If the Connecticut marketplace granted this coverage exemption for one or more months in 2018, instead of completing Part III, the exemption is reported in Part I of Form 8965. Before September 1, 2016, individuals could also be granted this exemption by the federal marketplace. Individuals who received this exemption from a marketplace and have an exemption cer-tificate continue to report the exemption in Part I of Form 8965 for as long as the exemption is valid. See a copy of Form 8965 and its instructions starting on Page 1-15.Individuals eligible for Indian health care services. An individual who is not otherwise eligible for an exemption as a member of an

if the full-year health care coverage or ex-empt box on page 1 of Form 1040 cannot be checked

, a coverage exemption or a combina-tion of coverage and an exemption

if Form 8965 must be completed because the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked

If the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked, this

• CHIP coverage pro-vided to an unborn child that includes comprehen-sive prenatal care for the pregnant mother.

if the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked

if the form must be completed because the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked


Indian tribe, but who is eligible for services through Indian Health Services, a tribal health facility or an urban Indian organization generally qualifies for an exemption [HHS Reg. 45 CFR 155.605(e)(3)]. The ex-emption is claimed in Part III of Form 8965. However, individuals residing in Connecticut may obtain this ex-emption from the state marketplace. If the exemption was granted by the Connecticut marketplace for one or more months in 2018, the exemption is reported in Part I of Form 8965, instead of Part III. Before September 1, 2016, individuals could also be granted this exemption by the federal marketplace. Individuals who received this exemption from a marketplace and have an exemption certificate continue to report the exemption in Part I of Form 8965 for as long as the exemption is valid. See a copy of Form 8965 and its instructions starting on Page 1-15.

Individuals With Certain Short Coverage GapsAn individual who has a short coverage gap is exempt from the shared responsibility penalty during that time period.Short coverage gap. A short coverage gap is a continuous period of less than three months that the individual does not have MEC. If the individual does not have MEC for a continuous period of three or more months, none of the months included in the continu-ous period is treated as included in a short coverage gap. [Reg. 1.5000A-3(j)(2)(i)]For purposes of qualifying for a short coverage gap exemption, an individual is treated as having MEC for any month in which he has coverage for at least one day during the month or for a month in which he is exempt under another exemption category. This exemption is claimed in Part III of Form 8965 when filing the individual’s federal income tax return. See a copy of Form 8965 and its instructions starting on Page 1-15.

Example: Dave has MEC in 2018 from January 1 through March 2. After March 2, Dave does not have MEC until he enrolls in an eligible employer-sponsored plan effective June 15. Therefore, Dave has MEC for January, February, March and June through December. Dave’s continuous period without coverage is two months, April and May. April and May are considered a short coverage gap.

More than one short gap. If an individual has more than one short coverage gap during a calendar year, the exemption only applies to the earliest short coverage gap. [IRC Sec. 5000A(e)(4)(B); Reg. 1.5000A-3(j)(2)]Continuous period bridging calendar years. In general, the number of months included in a continuous period is deter-mined without regard to the calendar years in which months included in that period occur. [IRC Sec. 5000A(e)(4)(B)(i); Reg. 1.5000A-3(j)(3)(i)]If an individual does not have MEC for a continuous period that begins in one tax year and ends in the next, for purposes of applying the exemption to the first tax year, the months in the second tax year included in the continuous period are disregarded. For purposes of apply-ing the exemption to the second tax year, the months in the first tax year that are part of the continuous period are taken into account.

Example: Freddy has MEC for the period of January 1 through October 15, 2018. Freddy is without coverage until enrolling in an eligible employer-sponsored plan effective February 15, 2019. November and December are treated as a short coverage gap for calendar year 2018. Therefore, Freddy has MEC or qualifies for an exemption for every month in 2018. January 2019 is not considered when applying the short coverage gap rule for 2018.

For calendar year 2019, the months of November and December 2018 are taken into account when determining if the short coverage gap exemption ap-plies. Therefore, because Freddy did not have coverage for three full months (November 2018–January 2019), he does not qualify for the short coverage gap exemption for January 2019. However, if later in the year, Freddy loses coverage, he may qualify for a short coverage gap exemption for those months, because January does not count as a short coverage gap month. Therefore, if Freddy lost coverage for June–July 2019, he would qualify for the exemption for those months.

Hardship ExemptionAn individual who, for any month, is determined to have suffered a hardship in obtaining MEC under a QHP is exempt [IRC Sec. 5000A(e)(5); Reg. 1.5000A-3(h)(1)]. For tax years before 2018, exemption certificates were only issued by the state insurance marketplace [Reg. 1.5000A-3(h)(2)]. For 2018, a hardship exemp-tion may be issued by the state marketplace or can be claimed in Part III of Form 8965. The application to apply for a hardship exemption is available at www.healthcare.gov.Hardship exemptions that are granted by a state marketplace are reported in Part I of Form 8965 filed with the individual’s income tax return. The exemption certificate number (ECN) is entered on Form 8965. See a copy of Form 8965 and its instructions starting on Page 1-15.A hardship exemption may be issued by a marketplace or claimed on the 2018 tax return in Part III of Form 8965 for a specific month, a period of months or an entire calendar year. Additionally, it can apply for periods that are in more than one calendar year (for ex-ample, from July–June). The hardship exemption usually applies for at least the month before, a month or months during which, and the month after, an individual cannot obtain coverage under a QHP due to any of the following reasons: [HHS Reg. 45 CFR 155.605(d)(1)] 1) The individual experiences financial or domestic circum-

stances, including an unexpected natural or human-caused event, such that he has a significant, unexpected increase in essential expenses.

2) The expense of purchasing a QHP would cause serious de-privation of food, shelter, clothing or other necessities.

3) The individual has experienced other circumstances similar to items 1 or 2 that prevent him from obtaining coverage under a QHP.

An individual experiencing any of the following circumstances for one or more months in 2018 can claim a hardship exemption for the month (or months) in Part III of Form 8965 using code “G:”• Being homeless. • Being evicted or facing eviction or foreclosure. • Receiving a shut-off notice from a utility company. • Experiencing domestic violence. • Experiencing the death of a close family member. • Experiencing a fire, flood or other natural or human-caused

disaster that results in substantial damage to the individual’s property.

• Filing for bankruptcy. • Having medical expenses that could not be paid. • Experiencing unexpected increases in essential expenses due

to caring for an ill, disabled or aging family member. • Claiming a child as a tax dependent when that child has been

denied coverage in Medicaid or CHIP, and another person is required by court order to provide medical support to the child.

• Having no (or inadequate) coverage while awaiting an appeals decision from the marketplace.

Continued on the next page

If the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked, this

if the full-year health care coverage or exempt box on page 1 of Form 1040 cannot be checked

Note: Since the individual shared responsibility penalty does apply for 2019, determining if a short-term exemption exists may not be applicable.


Premium Tax Credits and Cost-Sharing Subsidies for Individuals

OverviewAffordable Care Act. The Patient Protection and Affordable Care Act (P.L. 111-148), as amended by the Health Care and Education Reconciliation Act, is referred to as the Affordable Care Act (ACA).Affordable health insurance. The primary goal of the ACA is to increase access to affordable health insurance for millions of Americans without coverage and make health insurance more affordable for those already covered. In addition, the ACA makes numerous changes in the way health care is financed, organized and delivered. Marketplaces. Among its many provisions, the ACA provides that each state must have a state insurance marketplace (also called an exchange) where individuals can purchase and enroll in health insurance coverage. Individuals who do not have access to afford-able employer-sponsored coverage can enroll in coverage through the marketplace. As part of the application process, individuals are screened to see if they qualify for Medicare, Medicaid, CHIP or other applicable state or local programs. If so, they are enrolled in those programs, instead of coverage in a qualified health plan (QHP) offered through the marketplace. During the QHP enroll-ment process, individuals are screened to see if they qualify for financial assistance to help pay for insurance premiums or other out-of-pocket healthcare costs.Enrollment. Each state insurance marketplace must have an an-nual open enrollment period for individuals to enroll in a QHP with coverage that will be effective beginning the next calendar year. For coverage in calendar years beginning on or after January 1, 2018, the open enrollment period is November 1–December 15 of the calendar year preceding the coverage year. Individuals not able to enroll during the open enrollment period may be eligible for a special enrollment period. [See Special enrollment periods (SEPs) on Page 2-4.]Premium tax credits (PTCs). Certain individuals and families are able to receive federal subsidies in the form of tax credits to reduce the cost of purchasing coverage through the insurance marketplaces. [See Premium Tax Credit (PTC) in the next column.]Credit is refundable. The PTC is fully refundable, so even indi-viduals or families with little federal income tax liability can receive the full benefit of the credit.Credit is advanceable. Since many families may not have suf-ficient cash on hand to pay the full premium up-front, an advance payment of the premium tax credit (APTC) can be made directly to the insurance company. The APTC is reconciled with the actual PTC allowed for the year on Form 8962 [Premium Tax Credit (PTC)] which is filed as part of the individual’s federal income tax return.Cost-sharing-reduction subsidy. Taxpayers may be eligible for a discount that lowers out-of-pocket costs for deductibles, coinsurance and copayments. This reduction is available if the taxpayer: (1) ob-tains health insurance through a state marketplace, (2) has income below a certain level and (3) chooses a health plan from the Silver

plan category. If the taxpayer is a member of a federally recognized Indian tribe, he may qualify for additional cost-sharing benefits.Income levels for cost-sharing-reduction subsidy. Cost-sharing subsidies are available that reduce required out-of-pocket costs for certain individuals and families whose household income exceeds 100%, but does not exceed 250% of the applicable year federal poverty line (FPL).

premium tax credit (ptc)PTCs are available to assist low-income and moderate-income individuals and families who purchase health insurance through a state marketplace. Generally, to be eligible for a PTC, an individual must not qualify for Medicare, Medicaid, CHIP or other applicable state or local public programs, or have been offered minimum essential coverage (MEC) through an employer-sponsored plan that meets certain affordability and minimum value requirements.See Who Can Take the Premium Tax Credit (PTC)? on the inside front cover of this Handbook.

Individuals Eligible for the PTCApplicable taxpayers are allowed a credit against their federal in-come tax for any tax year of an amount equal to the PTC amount calculated for the taxpayer for the tax year. (IRC Sec. 36B) Applicable taxpayer. In general, an applicable taxpayer is a taxpayer whose household income for the tax year equals or exceeds 100% but does not exceed 400% of the applicable year FPL for the taxpayer’s family size [IRC Sec. 36B(c)(1)(A); Reg. 1.36B-2(b)(1)]. (For taxpayers whose income falls below the FPL, see Household income below 100% of the FPL on Page 3-2). An applicable taxpayer is allowed a PTC for any month that one or more members of his family (the applicable taxpayer or the applicable taxpayer’s spouse or dependent) is:• Enrolled in one or more QHPs through a state insurance mar-

ketplace and• Not eligible for MEC other than coverage under a health plan

offered in a state’s individual market (see What Is the Required Health Insurance Coverage? on Page 1-8 for a discussion of MEC).

Tax Family and Family SizeFor purposes of the PTC, a taxpayer’s tax family includes the taxpayer, the taxpayer’s spouse (if filing jointly) and all dependents

claimed on the taxpayer’s income tax return. The number of in-dividuals in the tax family is the family size. The terms tax family and family size include an individual who is not subject to, or is exempt from, the requirement to maintain MEC under IRC Sec. 5000A. See Tab 1 for more information. [Reg. 1.36B-1(d)]

Example: Gary and Marina are married. They have two children, ages 8 and 15, who live in their home all year. Both of the children are claimed as dependents on their joint income tax return. Gary and Marina’s family size is four (Gary + Marina + two dependent children).

Individuals in more than one tax family may enroll in the same QHP. For example, a parent may enroll his adult child in the same policy as other family members. In this case, the PTC is calculated

Tab 3 TopicsOverview ................................................................. Page 3-1Premium Tax Credit (PTC) ...................................... Page 3-1Completing Form 8962 ........................................... Page 3-6Reduced Cost-Sharing for

Low-Income Taxpayers ....................................... Page 3-12Form 8962 [Premium Tax Credit (PTC)] ............... Page 3-14Instructions for Form 8962 .................................... Page 3-16

includes:

• The taxpayer if he files a tax return for the year and cannot be claimed as a dependent on someone else’s tax return,• The taxpayer’s spouse if filing jointly and the spouse cannot be claimed as a dependent on someone else’s tax return and• Any dependents who the taxpayer can claim on his tax return.

; Notice 2018-84


Optional calculation methods. The IRS has developed two calculation methods, the iterative calculation method and the simplified calculation method, to calculate the SEHID for specified premiums and the PTC amount (Rev. Proc. 2014-41). Worksheets are provided in IRS Pub. 974 for taxpayers to use for the calculations un-der each of the methods. Modified calculations are needed when there are months for which no Section 162(l) deduction is allowed. This could occur when an individual only operates a business for a few months during the calendar year. (Rev. Proc. 2014-41)

Example: Aaron is self-employed, married and has two dependent children. His SE income from his business is $75,000. Household income (before calculating the SEHID) for 2018 is $84,425. Aaron, his wife and two children were enrolled in the state’s SLCSP for all of 2018. The annual premium was $10,500, and they received APTC of $2,670. Therefore, the amount of specified premiums they paid for health care coverage was $7,830. They did not have any unspecified premiums in 2018. The 2017 FPL (that is, the applicable year FPL) for a family of four is $24,600. Because the family received APTC, before calculating their SEHID and PTC amount, they must determine the limitation on the additional tax that may be due if any of the APTC must be repaid. Using a worksheet in IRS Pub. 974, Aaron calculates that the limitation on the APTC they may have to repay is $2,600 (see Limitation on repayments of excess APTC below).Here is the simplified calculation for Aaron: 1) Aaron determines that the SEHID limit for specified premiums is $10,430,

which is the sum of $7,830 (the specified premiums paid) plus $2,600 (the limitation on the amount of APTC that may have to be repaid). Aaron’s Step 1 household income is $73,995 ($84,425 household income − $10,430), which is 300% of the applicable year FPL for a family of four, so the applicable percentage is 9.56%.

2) Based on household income of $73,995, the affordable premium is $7,074 (9.56% × $73,995) and the initial PTC is $3,426 ($10,500 − $7,074).

3) Aaron’s SEHID under this step is $7,074, determined as specified premiums (that is, $10,500) less the PTC calculated in Step 2 (that is, $3,426), which is less than the deduction limitation amount of $10,430 calculated in Step 1.

4) Based on a SEHID of $7,074, household income is $77,351 ($84,425 − $7,074). The affordable premium is $7,395 (9.56% × $77,351) and the PTC is $3,105 ($10,500 − $7,395).

When filing their 2018 Form 1040, Aaron’s SEHID is $7,074 and the family’s PTC is $3,105. Because APTC received during the year was $2,670, an ad-ditional PTC amount of $435 ($3,105 − $2,670) is claimed on the tax return.

Limitation on repayments of excess APTC. Generally, the SE-HID is based on the actual cash premiums paid for health insur-ance and other qualifying insurance (for example, long-term care) during a calendar year. When a self-employed individual enrolls in a QHP and receives APTC, the APTC is not considered paid by the self-employed individual for SEHID purposes and, therefore, is not included in the calculations. However, any APTC that has to be repaid once the actual PTC amount for the year is calculated is included as premiums paid. Thus, before a self-employed individual can calculate the SEHID and PTC, he must determine the limitation on the additional tax that may be due if APTC has to be repaid.The maximum amount of the APTC that must be repaid is based on the taxpayer’s household income as a percentage of the ap-plicable year FPL. See the Part III—Repayment of Excess APTC on Page 3-8. If the taxpayer’s calculated household income is 400% or more than the applicable year FPL, no limitation on repayment of excess APTC is allowed. A worksheet in IRS Pub. 974 is used for the limitation calculation.

Example: For calendar year 2018, Don and Donna and their two dependent children enroll in a QHP through the marketplace with annual premiums of $10,500. The family received an APTC of $4,500 and had no other insurance premiums for which a SEHID applies. Therefore, for purposes of this calcula-tion, their specified premiums are $6,000 ($10,500 – $4,500).Donna is self-employed for all of 2018 and has earnings from her business of $75,000. The family’s total household income for the year, without the SEHID, is $78,000.Before calculating the SEHID and PTC, the couple must determine the limita-tion on repayment of excess APTC.The 2017 applicable FPL for a family size of four is $24,600.Don and Donna determine they meet the requirements for the $1,550 repay-ment limitation for taxpayers with household income of at least 200% and less than 300% of the FPL. Their household income in applying that limitation is $70,450 [$78,000 − ($6,000 specified premiums + 1,550 limitation)]. This amount is 286% of the FPL. Therefore, the $1,550 repayment limitation applies. Don and Donna can now calculate the amount of their SEHID and PTC, using $70,450 as their beginning household income amount.

reduced cOst-sharing FOr lOw-incOme taxpayers

Generally, health insurance does not pay 100% of health care costs. The amount of the health care costs other than insurance premiums paid by a covered individual is the cost-sharing portion. These out-of-pocket costs include deductibles, coinsurance and copayments. Employees with health flexible spending accounts (health FSAs) could elect to pay up to a maximum of $2,650 of these costs with pre-tax dollars in 2018. Taxpayers are also eligible for an itemized deduction for amounts paid with after-tax dollars for both premiums and unreimbursed medical costs in excess of 7.5% of their AGI (for 2018; 10% for 2019).

Cost-SharingA cost-sharing subsidy that reduces required out-of-pocket costs for certain individuals and families whose household income ex-ceeds 100%, but does not exceed 250%, of the applicable year FPL for the family size involved is available.Cost-sharing defined. Cost-sharing is any expenditure required by or on behalf of an insured individual with respect to essential health benefits. The term includes deductibles, coinsurance, co-payments, or similar charges, but excludes premiums, balance billing amounts for non-network providers, and spending for non-covered services. Also, if a plan uses a network of providers, cost-sharing paid by or on behalf of an insured individual for benefits provided outside of the network is excluded, but insurers can elect to include these costs.

Eligible Insured IndividualsAn eligible insured individual is a person who enrolls in a Silver-level QHP offered through the individual market of a state market-place, and is expected to have household income that is at least 100% but does not exceed 250% of the applicable year FPL, and meets the APTC requirements, discussed under Premium Tax Credit (PTC) on Page 3-1. Coordination with eligibility for Medicaid. Generally, individuals eligible for Medicaid are not eligible for a cost-sharing-reduction subsidy.Household income, family size, MAGI, coverage month, MEC exception, affordable coverage and coverage providing or $69,701 (Aaron’s earned income from self-employment less the SE tax

deduction)

The SE tax deduction is $5,299 {[($75,000 × .9235) × .153] ÷ 2}.

lesser of the


Health Insurance Mandate for Employers

OverviewThe Patient Protection and Affordable Care Act (ACA, P.L. 111-148), as amended, requires employers that employ an average of 50 or more full-time employ-ees to offer health insurance coverage that meets certain criteria to their full-time employees and the employees’ dependents.

Employer MandateTo ensure that certain large employers provide some degree of health insurance coverage to their employees and their employees’ dependents, the ACA includes an employer mandate provision. This provision imposes penalties (referred to as the employer shared responsibility penalties) on large employers that don’t offer adequate coverage to their employees (and their dependents).

Shared Responsibility PenaltySpecifically, the ACA provides that applicable large employers (ALEs) may be subject to a penalty under IRC Sec. 4980H(a) if they do not offer their full-time employees (and their dependents) the opportunity to enroll in a health plan that provides minimum essential coverage (MEC). ALEs that offer MEC may be subject to a penalty under IRC Sec. 4980H(b) if the coverage under at least one plan offered to the full-time employee does not provide minimum value or if the lowest-cost self-only minimum value cov-erage offered is unaffordable for the employee. These employers can satisfy the mandate to provide full-time employees (and their dependents) with adequate health insurance by offering the health insurance through an eligible employer-sponsored plan. N Observation: Employers with less than 50 full-time employees (including full-time equivalents) are not subject to the mandate.This tab discusses when an employer is an ALE subject to the mandate. It also discusses which employees must be offered adequate coverage in order for the employer to avoid penalties. See Tab 5 for details on calculating the employer shared respon-sibility penalty.

applicable large emplOyers (ales)

Only applicable large employers (ALEs) are subject to the employer mandate and, thus, potentially subject to the employer shared responsibility penalties under IRC Sec. 4980H.

Definition of an ALEAn ALE is an employer that employed an average of 50 or more full-time employees (including full-time equivalents) on business days during the preceding calendar year. [IRC Sec. 4980H(c)(2)(A); Reg. 54.4980H-1(a)(4)]

Determining ALE Status• Step one: Calculate the number of full-time employees and the

full-time equivalent (FTE) value of all non-full-time employees for each month of the applicable year (that is, the prior calen-dar year). Accordingly, to determine ALE status for 2018, the employer bases the testing on 2017. An employee who works on average at least 30 hours per week (or 130 hours during a month) is a full-time employee. When determining if the employer is an ALE, the total hours worked by employees who are not full-time employees are used in a calculation to determine the FTE value of employees who are not full-time employees. The FTE value for each calendar month is calculated by combining the number of hours worked by all employees who are not full time (limited to no more than 120 hours for any employee) and dividing that number by 120.

• Step two: Add together the total full-time employees and the FTE values for all months of the year.

• Step three: Divide the result of Step two by the number of months in the year. The result, if not a whole number, is rounded down to the next lowest whole number (for example, 49.6 is rounded down to 49).

If the result of this calculation is less than 50, the employer is not an ALE.

Tab 4 TopicsOverview ................................................................. Page 4-1Applicable Large Employers (ALEs) ....................... Page 4-1Employer Defined ................................................... Page 4-2Application of Aggregation Rules ............................ Page 4-2Employee Defined................................................... Page 4-3Determining Hours of Service ................................. Page 4-4Determining Which Employees Must Be

Offered Coverage ................................................. Page 4-4Full-Time Employee Who Must Be Offered

Coverage .............................................................. Page 4-4Independent Contractor Issues ............................... Page 4-4Differing Treatment of Part-Time Employees .......... Page 4-5Dependents Who Must Be Offered Coverage ........ Page 4-5Full-Time Status Determination .............................. Page 4-5Ongoing Employees................................................ Page 4-7

Comprehensive Example—Ongoing Employees .... Page 4-8New Full-Time Employees ...................................... Page 4-8New Variable Hour and Seasonal Employees ........ Page 4-9Transition From New Employee to Ongoing

Employee.............................................................. Page 4-9Administrative Period—New Employees .............. Page 4-10Change in Employment Status—Variable

Hour Employee ................................................... Page 4-10Change In Employment Status ............................ Page 4-11Returning and Rehired Employees ....................... Page 4-12Comprehensive Example—Determining ALE

Status ................................................................. Page 4-13Worksheet 1—Monthly Analysis Worksheet ......... Page 4-17Worksheet 2—Large Employer Summary ............ Page 4-17

Employers Offering Coverage Through an Association Health PlanEmployers that offer health insurance coverage through an association health plan are not considered related to the other employers participating in the plan. Therefore, the employer does not become subject to the employer mandate solely by participating in the association plan.


cOmprehensive example—determining ale status

Carina’s Marina is located in Florida. The work force at the Marina fluctuates based on the season, with the first four months of the year being the busiest. The Marina is trying to determine if they are an ALE subject to the Section 4980H rules for calendar year 2019. Using the blank Worksheet 1—Monthly Analysis Worksheet on Page 4-17, the Marina tracks the hours for each month of 2018. While the Marina has to use actual hours for its hourly employees, it can use the hourly, daily or weekly method for tracking its non-hourly employees. Since the Marina tracks the hours for payroll purposes, it uses the hourly method for all em-ployees for testing purposes. The Sample Worksheet 1—Monthly Analysis Worksheet on Page 4-14 shows the employee hours for January 2018. Please note the following: 1) Solely to determine if it is an ALE, all employees with 130 or

more hours of service during a month are considered a full-time employee and “1” is entered into column C to indicate a full-time employee.

2) For employees with less than 130 hours of service during the month, the actual hours of service for each month (limited to 120 hours per employee) are entered in column D. [Reg. 54.4980H-2(c)(2)]

In preparing Sample Worksheet 2—Large Employer Summary on Page 4-15, the total number of full-time employees from column C of Sample Worksheet 1—Monthly Analysis Worksheet on Page 4-14 is carried over to column B of Sample Worksheet 2—Large Employer Sum-mary on Page 4-15. The total hours from part-time employees (lim-ited to 120 hours per employee) are transferred from column D of Sample Worksheet 1—Monthly Analysis Worksheet on Page 4-14 to column C of Sample Worksheet 2—Large Employer Summary on Page 4-15. The total number of full-time employees along with the total hours for the non-full-time employees is then transferred to Sample Worksheet 2—Large Employer Summary on Page 4-15, where it is summarized to determine if the business is an ALE.After transferring the information to Sample Worksheet 2—Large Employer Summary on Page 4-15, the total hours for the deemed part-time employees is converted to an FTE value by dividing the total hours by 120. For 2018, the Marina ends up with an average of 54 employees (after rounding down to the nearest whole number). Even after taking into account seasonality by eliminating the four months with the highest number of FTEs, the Marina is considered an ALE for 2019.

U Caution: While the Marina is considered an ALE, determining who is a full-time employee who must be offered health coverage and the imposition of the shared responsibility penalties will require additional analysis. See Tab 5 for further information. @ Strategy: The ACA definition of an employer is based on the common law standard, which states that an employment relation-ship exists if an employee is subject to the will and control of the employer, not only as to what should be done but how it should be done. Those employers relying on Section 530 Relief to treat workers as independent contractors for payroll tax purposes should thoroughly review each worker‘s common law status. Given the potential penalties associated with the ACA, the cost of worker reclassifications could be devastating to a business. Note: It is possible for an employer to be considered an ALE even if it has no full-time employees. However, no potential shared responsibility penalty can be assessed since none of the employees meet the full-time employee requirement to be offered coverage.

Variation 1: Seasonal Worker ExceptionVariation 1: Worksheet 2—Large Employer Summary on Page 4-15 shows the Marina’s summary of full-time equivalents. While the Marina still averages at least 50 FTEs each month of the year, after taking into account seasonal workers (four months or 120 days), the average FTEs drop below 50 to 46 FTEs. Since the average is less than 50 employees, the Marina is not considered an ALE for 2019. See Seasonal Worker Exception on Page 4-2 for more information.

Variation 2: Seasonal Worker Exception When There Are Multiple SeasonsInstead of one busy season in the first four months of the year, the Marina has two separate peaks, one near the end of the year when the tourists come to avoid the winter and a separate fishing season in which it hires seasonal workers. For the purpose of the seasonal worker exception, the four months do not have to be consecutive months. Accordingly, the Marina may have multiple busy seasons in which it hires seasonal employees and still be under the 50 FTE large employer threshold because of the four month seasonal worker exception. Note: In both the variations, the Marina was able to use the seasonal worker exception to reduce its FTEs below the 50 FTE threshold. Given the size of the Marina’s workforce, a slight increase in the number of workers or a prolonged busy season could put the workforce over the 50 FTE limit in the future. Close monitoring of the workforce is warranted.

Notes

To


Limited Non-Assessment PeriodA limited non-assessment period refers to a period during which an ALE is not subject to a Section 4980H(a) penalty, and in certain cases a Section 4980H(b) penalty, even if a full-time employee is not offered adequate health insurance coverage during the period. The limited non-assessment periods are: 1) January through March of the first calendar year in which an

employer is an ALE, but only for an employee who was not offered MEC by the employer at any point during the prior calendar year;

2) The waiting period under the monthly measurement method; 3) The waiting period under the look-back measurement method; 4) The initial measurement period and associated administrative

period under the look-back measurement method; 5) The period following a change in status that occurs during a

initial measurement period under the look-back measurement method and

6) The employee’s first calendar month of employment if the employee’s first day of employment is a day other than the first day of the calendar month.

The periods described in items 1–5 are limited non-assessment periods for purposes of the penalty under IRC Sec. 4980H(a) only if the employee is offered MEC by the first day of the first month following the end of the period. They are limited non-assessment periods under IRC Sec. 4980H(b) only if the health coverage that is offered to the employee by the first day of the first month following the end of the period is minimum value insurance.For more information on measurement periods, see Determining Which Employees Must Be Offered Coverage on Page 4-4.

Time and Manner for Filing ReturnsGenerally, Forms 1095-C and 1094-C must be filed with the IRS on or before February 28 (March 31, if filed electronically) of the year immediately following the calendar year to which the return relates.An automatic 30-day extension to file the returns with the IRS can be obtained by filing Form 8809 (Request for Extension of Time to File Information Returns) on or before the due date. One additional 30-day extension can be requested by filing a second Form 8809 on paper by the initial extended due date. The extension request must be signed by a person duly authorized to sign a return. To receive the additional extension, the employer must confirm on the Form 8809 that it meets one of the five criteria specified on the form.Forms 1095-C and transmittal Form 1094-C are required to be filed electronically with the IRS unless the ALE files fewer than 250 Forms 1095-C for the calendar year. ALEs that are not required to file electronically may choose to do so. The IRS encourages electronic filing by all filers.U Caution: Proposed regulations would require an employer that is required to file a total of 250 or more information returns of any type covered by Reg. 301.6011-2(b) to file all information returns electronically [Prop. Reg. 301.6011-2(b)(4)]. The change is proposed to be effective for information returns (including Forms 1095-C and Form 1094-C) required to be filed after December 31, 2018. However, it has been requested that the effective date be postponed until at least January 1, 2020.

Furnishing Forms 1095-C to Employees Generally, ALEs must furnish a copy of Form 1095-C to each Sec-tion 4980H full-time employee on or before January 31 of the year immediately following the calendar year to which the information relates. Additionally, if the ALE sponsors a self-insured health plan, a copy of Form 1095-C must be given to any employee (whether or not he was a full-time employee at any time of the year) who enrolled (or had family members who enrolled) in the self-insured coverage.

The social security number (SSN) of the employee or any family member receiving coverage on Form 1095-C can be truncated on the copy of the form given to the employee by showing only the last four digits of the SSN and replacing the first five digits with asterisks (*) or Xs. Truncation is not allowed on forms filed with the IRS. The employer’s EIN may not be truncated on either the statement furnished to the employee or the forms filed with the IRS. Forms 1095-C must be furnished to employees on paper by mail or hand-delivered, unless the recipient affirmatively consents to receive the statement in an electronic format. If mailed, the statement must be sent to the employee’s last known permanent address, or if no permanent address is known, to the employee’s temporary address. Consent to furnish statement electronically. The requirement to obtain affirmative consent to furnish a statement electronically ensures that statements are sent electronically only to individuals who are able to access them. An individual may consent on paper or electronically, such as by email. If consent is on paper, the in-dividual must confirm the consent electronically. A statement may be furnished electronically by email or by informing the individual how to access the statement on the employer’s website.

PenaltiesPenalties may be assessed under IRC Sec. 6721 for failure to file Forms 1095-C and 1094-C with the IRS and under IRC Sec. 6722 for failure to furnish a correct copy of Form 1095-C (or an approved substitute form) to each full-time employee. For 2018 information returns filed in 2019, the Section 6721 penalty ranges from $50–$270 for each incorrect return (that is, Form 1095-C) sent to the IRS, depending on when (or if) the failure is corrected. The maximum annual penalty is $3,275,500 [IRC Sec. 6721(a)(1); Rev. Proc. 2018-18]. For filers with average annual gross receipts of $5 million or less for the three most recent tax years, the maximum penalty is $1,091,500. The penalties are higher if there is intentional disregard for the filing requirements.The Section 6722 penalty ranges from $50–$270 for each incor-rect return (that is, Form 1095-C) sent to a full-time employee (or for a return not sent), depending on when (or if) the failure is cor-rected. The maximum penalty that can be assessed for failure to furnish the correct statement to full-time employees is $3,275,500 [IRC Sec. 6722(a)(1); Rev. Proc. 2018-18]. For filers with average annual gross receipts of $5 million or less for the three most recent tax years, the maximum penalty is $1,091,500. The penalties are higher if there is intentional disregard for the filing requirements. Note: Under IRC Sec. 6724, penalties assessed under IRC Secs. 6721 and 6722 may be waived if the failure is due to rea-sonable cause.

health insurance cOverage repOrting On FOrm 1095-b

Certain health insurance providers (and employers providing self-insured health benefits) must file Form 1095-B (Health Coverage) with the IRS and provide a copy of the form to individuals. A copy of Form 1095-B is on Page 8-32. Form 1095-B reports informa-tion required by IRC Sec. 6055 on the type of health insurance provided to individuals. Fully insured coverage sponsored by employers, multiemployer plans and individual insurance coverage that is purchased outside of a state’s health insurance marketplace is reported on Form 1095-B. Coverage obtained by employees of small employers through the Small Business Health Options Program (SHOP) marketplace (see Tab 6) also is reported on Form 1095-B. However, coverage

Additionally, the IRS is providing penalty relief for filers of 2018 forms that report incorrect or incom-plete information if they can show they made a good faith effort to comply with the reporting requirements. (Notice 2018-94)

However, the IRS extended the date for furnishing the 2018 Forms 1095-C to employees until March 4, 2019.


in qualified health plans (QHPs) that individuals enroll in through the individual market of a state’s health insurance marketplace for which individuals may receive a premium tax credit is reported on Form 1095-A (Health Insurance Marketplace Statement). (See a copy of Form 1095-A on Page 8-30.) Note: Catastrophic coverage that can be purchased through a state insurance marketplace should be reported on Form 1095-B. However, the IRS is not requiring insurers to report this coverage on Form 1095-B until required by final regulations. The IRS does encourage insurers to voluntarily report on catastrophic plan cover-age enrolled in through a marketplace. Individuals enrolled only in catastrophic coverage are not eligible for a premium tax credit to help pay for the coverage. The IRS uses the information reported on Form 1095-B to enforce the individual mandate. Individuals use the information reported on the form to determine that they had adequate insurance when preparing their individual income tax returns and to identify the months without coverage for which they may be subject to an individual shared responsibility penalty (see Tab 1). Note: The individual shared responsibility penalty for not hav-ing MEC is reduced to zero for months beginning after December 2018. However, the penalty is in effect for months in 2018. No reporting changes for 2019 had been announced by the IRS at the time this Handbook was published.Generally, Form 1095-B is filed by health insurance issuers or carri-ers to report fully-insured coverage, or by government agencies for government-sponsored programs (such as Medicare). Therefore, individuals with fully-insured health insurance coverage through an employer should receive a Form 1095-B from the insurer. If the employer is an ALE, the employee will also receive a Form 1095-C from the employer.A small employer that is not an ALE must file Form 1095-B for any employee who enrolled in a self-insured group health plan spon-sored by the employer. ALEs with self-insured plans use Part III of Form 1095-C to satisfy their Section 6055 reporting obligations (see Health Insurance Coverage Reporting on Form 1095-C on Page 8-3). Therefore, employers with self-insured plans should be sure which form they need to file.

Information Reported on Form 1095-BPart I, responsible individual. In Part I of Form 1095-B, infor-mation on the responsible individual, to whom the form is sent is entered. The responsible individual is (1) the primary name on the insurance coverage or (2) the person who, based on a rela-tionship to individuals covered by the insurance or some other circumstances, is the individual who should receive the statement. Generally, the responsible individual is the taxpayer who is liable for the individual shared responsibility penalty for the covered individual. For employer-sponsored insurance that is fully-insured and reported on Form 1095-B, the responsible individual gener-ally is the employee or former employee. [Reg. 1.6055-1(b)(11)] Note: The responsible individual’s SSN can be truncated on the copy of Form 1095-B given to the individual.On line 8, the origin of the applicable insurance coverage is identi-fied by entering one of the following letter codes:

A—Small Business Health Options Program (SHOP).B—Employer-sponsored coverage.C—Government-sponsored program.D—Individual market insurance.E—Multiemployer plan.F—Other designated minimum essential coverage (MEC).

Part II, employer-sponsored coverage. Part II of Form 1095-B is completed by issuers or carriers only if code A (SHOP coverage) or code B (employer-sponsored coverage) is entered on line 8. The

identifying information for the employer is entered in this section. Employers reporting self-insured group health plan coverage on Form 1095-B enter code B on line 8, but don’t complete Part II. The employer’s EIN reported in Part II may be truncated on copies of Form 1095-B furnished to recipients. However, the filer’s EIN may not be truncated on the statement. Truncation of TINs, includ-ing EINs, is not allowed on returns filed with the IRS.Part III, issuer or other coverage provider. The plan provider identifying information is entered in Part III of Form 1095-B. The plan provider is the sponsor of a self-insured employer plan, an issuer or carrier of insured coverage, government agency providing government-sponsored coverage or other coverage sponsor. The EIN of the plan provider can’t be truncated on any copy of Form 1095-B. A contact telephone number is entered on line 18 that provides direct access to an individual who can answer questions that a responsible individual or covered individual may have about information reported on Form 1095-B.Part IV, covered individuals. In Part IV of Form 1095-B, infor-mation about all of the individuals covered by the plan or policy is reported. If more than six individuals were covered under the policy or plan, a Form 1095-B, Part IV Continuation Sheet is used to report information for the additional individuals.The name of each covered individual is entered on a separate line in column (a). The individual’s SSN (or TIN) is entered in column (b). If an SSN (or TIN) is not available, the individual’s date of birth is entered in column (c).U Caution: The filer of Form 1095-B (for example, an employer with self-insured coverage) should obtain the SSN or other TIN for every person enrolled in the coverage on the application for coverage. If an SSN is not provided on the application, the filer should make another request within 75 days of the application. The IRS may impose penalties on the filer if a date of birth is used and the filer did not properly solicit each individual’s SSN. [Prop. Reg. 1.6055-1(h); Notice 2015-68]Columns (d) and (e) are used to indicate the months in which the individual was covered by the plan for at least one day during the month. If the individual had coverage for at least one day per month for all 12 months of the year, the box in column (d) is checked and column (e) is left blank. If coverage was not provided for at least one day during each month of the year, the applicable monthly boxes in column (e) are marked.

Filing Form 1095-B and Furnishing Copy to Responsible IndividualForms 1095-B must be filed with the IRS using Form 1094-B (Transmittal of Health Coverage Information Returns). The returns must be filed on or before Feb-ruary 28 (March 31, if filed electronically) of the year immediately following the calendar year to which the return relates. A copy of Form 1095-B must be provided to the responsible indi-vidual on or before January 31 of the year immediately following the calendar year to which the return relates. An automatic 30-day extension to file the returns with the IRS can be obtained by filing Form 8809 (Request for Extension of Time to File Information Returns) on or before the due date. One additional 30-day extension can be requested by filing a second Form 8809 on paper by the initial extended due date. The extension request must be signed by a person duly authorized to sign a return. To receive the additional extension, the employer must confirm on the Form 8809 that it meets one of the five criteria specified on the form.Forms 1095-B and transmittal Form 1094-B are required to be filed electronically with the IRS unless the reporting entity files fewer than 250 Forms 1095-B for the calendar year. Reporting entities

However, the IRS extended the date for furnishing 2018 forms to responsible indi-viduals until March 4, 2019. The extended date does not apply for filing with the IRS.


options available through a state insurance marketplace without obtaining consent. However to use tax return information to solicit and facilitate health care enrollment services, the preparer must first obtain taxpayer consent.Solicitation to offer health care enrollment services by all tax return preparers, including volunteer preparers, using tax return information, requires taxpayer consent. (See Rev. Proc. 2013-14, as modified by Rev. Proc. 2013-19, for requirements for consents from taxpayers who file a return in the Form 1040 series.)U Caution: Tax return preparers must use the mandatory lan-guage in Rev. Proc. 2013-14. (Rev. Proc. 2013-19)

Example: Return Preparer Zack would like to use tax return information to solicit and facilitate enrollment of eligible clients into QHPs available through the insurance marketplace in his state. Zack must obtain taxpayer consent prior to using information for solicitation and enrollment purposes.

patient-centered OutcOmes research trust Fund Fee

IRC Secs. 4375, 4376 and 4377

A fee on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans is imposed to help fund the Patient-Centered Outcomes Research Institute (PCORI). The PCORI assists patients, clinicians, purchasers and policy-mak-ers in making informed health decisions through research and by advancing the quality and relevance of evidence-based medicine.The fee applies to policy or plan years ending before October 1, 2019. The fee, which is based on the average number of lives covered under a policy or plan, is reported annually on the second quarter Form 720 and must be paid by its due date, July 31.See the Application of the Patient-Centered Outcomes Research Trust Fund Fee to Common Types of Health Coverage or Arrange-ments table on Page 8-12.The fee amount. The amount of the fee equals the aver-age number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year. For policy and plan years ending on or after October 1, 2017 and before October 1, 2018, the fee was $2.39 per covered life (Notice 2017-61). For calendar year plans, 2018 is the final year that PCORI fees apply. The IRS had not announced the PCORI fee for fiscal year plans with years ending after 2018 but before October 1, 2019, when this Handbook was published.

Example: Sponsor Chad maintains Plan X, which is a self-insured health plan with a fiscal year ending June 30, 2018 and is responsible for the PCORI fee. The Form 720 that must be filed for this plan year is due no later than July 31, 2019. The fee is calculated by multiplying the average number of covered lives by $2.39 (the applicable dollar amount in effect for plans with plan years ending on or after October 1, 2017 and before October 1, 2018).

Issuers of specified health insurance policies are required to use one of four alternative methods to determine the average num-ber of lives covered under a specified health insurance policy for a policy year. This discussion deals with the rules for plan sponsors. Plan sponsors (self-insured). Plan sponsors are required to use one of three alternative methods to determine the average number of lives covered under the applicable self-insured health plan for a plan year:• The actual count method, • The snapshot method or • The Form 5500 method.

Counting. All individuals who are covered during the plan year must be counted in computing the average number of lives covered for that year. Thus, an applicable self-insured health plan must count an employee and his dependent child as two separate covered lives unless the plan is an HRA or FSA. See Special rule for FSAs and HRAs on Page 8-10.Actual count method. The average number of lives covered can be determined by adding the total number of lives covered for each day of the plan year and dividing that total by the number of days in the plan year. [Reg. 46.4376-1(c)(2)(iii)]

Example: AAA Tree Service is the plan sponsor of a calendar year self-insured health plan. AAA calculates the sum of lives covered under the plan for each day of the plan year as 3,285,000. The average number of lives covered under the plan for that year is 9,000 (3,285,000 ÷ 365). To calculate the IRC Sec-tion 4376 fee, AAA must multiply 9,000 by the applicable per-life fee amount.

Snapshot methods. A plan sponsor may determine the average number of lives covered during a plan year by adding the total of lives covered on one or more dates during the first, second or third month of each quarter of the plan year and dividing by the number of dates on which a count was based. Each date used for the second, third and fourth quarter must be within three days of the date that corresponds to the date used for the first quarter. If a plan spon-sor uses multiple dates for the first quarter, the plan sponsor must use dates in the remaining quarters that correspond to the dates used for the first quar-ter. Dates chosen within three days of the original date are considered corresponding dates. All dates must fall within the plan year. [Reg. 46.4376-1(c)(2)(iv)]The 30th and 31st day of a month are treated as the last day of the month for determining the corresponding date for any month that has fewer than 31 days (for example, if either March 30 or March 31 is used for a calendar year plan, June 30 is the corre-sponding date for the second quarter). The number of lives used for the snapshot may be determined based on either the snapshot count method or on the snapshot factor method. Snapshot count method. Under the snapshot count method, the number of lives (that is, each employee, spouse and dependent covered under the plan) covered on a date equals the actual number of lives covered on the designated dates.

Example: Bob’s Big Rig (BBR) is the sponsor of a calendar year self-insured health plan. BBR uses the snapshot count method to determine the average number of lives covered. On January 4, the BBR self-insured health plan covers 2,000 lives. On April 5, it covers 2,100 lives. On July 5 it covers 2,050 lives. On October 4, it covers 2,050 lives. The total lives counted equal 8,200 (2,000 + 2,100 + 2,050 + 2,050). The total lives counted are divided by the number of days selected to obtain the snapshot total of 2,050 lives (8,200 ÷ 4). The snapshot total of 2,050 is multiplied by the applicable per-life fee amount.

Snapshot factor method. Under the snapshot factor method, the number of lives covered on a date equals the sum of:• The number of participants with self-only coverage on that date

plus• The number of participants with coverage other than self-only

coverage on the date multiplied by 2.35.For policy and plan years ending on or after October 1, 2018, and before October 1, 2019, the fee amount is $2.45 per covered life. (Notice 2018-85)

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