The Patient Protection and Affordable Care Act – Individual Mandate

The United States Supreme Court issued its decision on the constitutionality of the Patient Protection and Affordable Care Act (“PPACA”) on June 28, 2012.  The court’s decision to uphold the law (with the exception of certain Medicaid provisions) protects numerous tax provisions for individuals and businesses alike.  As we await future IRS guidance on the provisions, let’s discuss some key factors of the individual mandate portion of the legislation.


Who Is Exempt?

Beginning 2014, the PPACA requires applicable individuals to carry minimum essential health coverage for themselves and their dependents or pay a penalty for each month of noncompliance. Several groups are considered exempt, such as individuals covered by Medicaid and Medicare, those with coverage under military health plans, undocumented individuals, incarcerated individuals, health care ministry members, members of an Indian tribe, and members of a religion conscientiously opposed to accepting benefits.  Additionally, no penalty will be imposed on those individuals without coverage for a period of 90 days within a one year period nor will it be imposed on individuals who are unable to afford coverage.  An individual will be treated as unable to afford coverage if the required contribution for employer-sponsored coverage or a bronze-level plan on a state exchange program exceeds eight percent of the individual’s household income for the tax year.  If an individual’s household income is below the income thresholds for filing income tax returns, they will be considered exempt as well.


What is the Penalty?

Beginning 2014, the penalty will be phased in over a three-year period with inflation increases indexed after 2016.  The penalty will generally be calculated by taking the greater of a flat dollar amount ($95 for 2014; $325 for 2015; and $695 in 2016 and later) or calculation based on a percentage of the taxpayer’s household income (1% for 2014, 2% for 2015, 2.5% for 2016 and later).  The penalty is prorated on a monthly basis.  The flat dollar amount for individuals under the age of 18 will be 50% of the aforementioned amounts.  The penalty amount cannot exceed the national average of the annual premiums of a “bronze level” health insurance plan offered through the exchange programs.



While the individual mandate has been debated immensely, it is only one provision of the PPACA.  Individual taxpayers and employers must prepare for sweeping changes in health care in coming years.  Many of the provisions in the PPACA have already been implemented while others, such as the individual mandate, are scheduled to take effect in future tax years.  Since passage of the PPACA, the IRS and the U.S. Departments of Health and Human Services (HHS) and Labor (DOL) have issued extensive guidance on the new law. The pace of guidance is expected to accelerate now that the law has been upheld by the Supreme Court.  We will continue to update our clients on the future development of the PPACA.


IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (a) avoiding penalties under any taxing jurisdiction or (b) promoting, marketing, or recommending to another party any transaction or matter addressed herein.


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