IRS Issues Updates on Individual and Employer Mandate Compliance

On Thursday, the Internal Revenue Service announced that financial penalties for U.S. residents who do not comply with and are not exempt from the Affordable Care Act's individual mandate this year will be capped at $2,448, The Hill reports.

Meanwhile, penalties under the mandate for families with five or more members will be capped at $12,240 this year, according to IRS (Al-Faruque, The Hill, 7/24).

Under the ACA's individual mandate, most U.S. residents are required to purchase health coverage beginning this year or face penalties of at least $95 for an adult or 1% of an individual's taxable income, whichever is higher (California Healthline, 6/6).

While individuals will still have to pay up to as much as 1% of their annual incomes, the cap means that people with annual incomes of about $250,000 and up will only have to pay $2,448 (AP/San Francisco Chronicle, 7/24).

The penalties will increase to $325 or 2% in 2015 and $695 or 2.5% in 2016. The federal government is scheduled to start enforcing the mandate in 2015, after people file their 2014 tax returns (American Health Line, 6/6). Individuals with incomes below $10,150 are exempt from the mandate (The Hill, 7/24).

The federal government estimates that nearly four million people could face the penalties by 2016 (AP/Washington Times, 7/24).

According to The Hill, the penalty caps were calculated using cost estimates from bronze-level exchange plans. IRS determined that the average cost of bronze-level exchange plans this year is $204 per person, and, therefore individuals can be penalized up to $204 for each month they remain uninsured. For families with at least five members, that average cost and penalty per month is $1,020 (The Hill, 7/24).

IRS Releases Draft Forms for Employer Mandate

IRS on Thursday also posted draft forms that businesses will have to complete in order to comply with the ACA's employer mandate, Politico reports.

According to observers, the forms signal that the Obama administration intends to move forward as planned with the employer mandate, which has already been delayed twice. An administration official said that the White House will adhere to timelines for the mandate that were announced earlier this year (Haberkorn/Snell, Politico, 7/24).

The employer mandate requires businesses with more than 50 employees working 30 hours or more per week to provide affordable health insurance coverage to workers or face fines.

Under a timeline released by the Department of Treasury and IRS in February, mid-sized businesses that employ 50 to 99 full-time workers will have another year to provide health insurance coverage to employees. These employers will not face fines for failing to provide coverage to workers until 2016, according to the final rule.

Meanwhile, businesses that employ 100 or more full-time workers will be subject to the mandate starting in 2015. However, the final rule gives these employers more time to ramp up coverage. To avoid fines, large employers only need to offer coverage to 70% of workers in 2015, rather than 95%. They will need to start offering coverage to 95% of workers in 2016 (California Healthline, 2/11).

According to Politico, the forms streamline the reporting requirements for businesses and drop three categories of required information. For example, employers can now file one form for people who have coverage all year, instead of filing a form for each individual every month. In addition, self-insured employers will now have to fill out one form, instead of two.

However, some business groups said the information still does not offer enough guidance for employers to prepare for the mandate. Retail Industry Leaders Association Vice President of Government Affairs Christine Pollack said, "The IRS only released draft forms, with no instructions or technical specifications." She added, "For the longest time, retailers have been pounding their heads, asking for this information from the IRS in order to get their systems up and running and comply with these requirements beginning this January. Yet again, it's too little, too late for employers" (Politico, 7/24).

Meanwhile, tax preparers also have indicated they might not have enough time to prepare for the requirements because they do not have information on how individuals will report details about their health coverage (Radnofsky, Wall Street Journal, 7/24).