Impact of Affordable Care Act Tax Provisions

Recent developments in the tax provisions of the Affordable Care Act (ACA) could have significant repercussions for both individuals and businesses. Non-exempt individuals are now subject to a shared responsibility penalty (“excise tax”) for failing to carry qualified health insurance. The provisions also penalize certain employers who fail to offer minimum essential health care coverage to their employees, and some previously acceptable group health plans no longer meet the minimum standard. To avoid costly penalties, individuals and businesses must ensure that their health care coverage—or lack of coverage—complies with these developments.

The transition phase of the new provisions poses an additional challenge to individuals and businesses because enforcement of some requirements begins sooner than others. For example, under a limited set of circumstances, the provisions entitle certain types of employers, who do not offer employees minimal essential coverage, to relief from the excise tax for the year 2015. Individuals have more restricted opportunities for transition relief that do not extend past any month in 2014. However, individuals should be aware that they might either qualify for an exemption from the excise tax or be eligible to take advantage of a refundable tax credit to reduce the cost of health care coverage purchased through a qualified health insurance exchange.

As these developments outgrow the transition phase, understanding what constitutes minimum essential coverage becomes increasingly important. Coverage that provides limited benefits—even under government-sponsored plans such as Medicaid—generally will not qualify. In particular, employers should be aware that there is a $100 per day per employee penalty for only providing employees with coverage subject to an annual dollar limit, such as a standalone health reimbursement arrangement or an employer payment plan. Familiarity with the ACA can help individuals and businesses avoid these penalties and even benefit from certain provisions.

 

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