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The California Franchise Tax Board (FTB) has released detailed information pertaining to the state’s Individual Mandate as the furnishing deadline for self-insured employers draws near.
The details apply to special rules regarding dependents, penalty exemptions, and gaps in coverage. The special rules have been amended to the final regulations and some of the key takeaways as cited directly from the regulations can be found below:
- For a month when an applicable individual does not have minimum essential coverage, if the applicable individual is a dependent of another applicable individual for the other applicable individual’s taxable year including that month, the other applicable individual is the responsible individual liable for the penalty attributable to the dependent’s lack of coverage if that dependent is an applicable dependent.
- An applicable individual is an exempt individual for a month the last day of which is included in a short coverage gap.
- A responsible individual shall not be liable for a penalty for any applicable household member for a month that includes a day on which the applicable household member is an exempt individual.
We will dive further into these special rules in the coming weeks. In the interim, you can find more information on the amended special rules, by heading to the FTB’s final regulations. For more information on previously released details within the final regulations, read our review on what you need to know.
California’s Individual Mandate first went into effect January 2020 and requires state residents and dependents to obtain minimum essential coverage or pay a penalty. Individuals without coverage through their employer must report on the healthcare coverage to the FTB when filing state tax returns. A full list of exemptions has also been published for public reference.
California state residents that fail to obtain adequate health coverage for the entire duration of the 2020 tax year will be subject to a penalty of $695–multiplied by a cost of living adjustment–per adult and half of that amount per child.The Individual Shared Responsibility Penalty is either a flat penalty per household member or 2.5% of gross household income that exceeds California’s filing threshold, whichever is higher. State residents interested in seeing their estimated penalty for the 2020 tax year should review the Individual Shared Responsibility Penalty Estimator.
One way the state identifies individuals who have not complied with California’s Individual Mandate is through the issuance of Form 3895C.
Form 3895C, issued by the Franchise Tax Board, requires additional reporting obligations for employers that offer self-insured health plans, specifically on who was enrolled in health coverage. Draft instructions for Form 3895C can be viewed here. The information must be furnished to employees by January 31, 2021 and filed with California’s Franchise Tax Board by March 31, 2021.
Employers with self-insured plans should take note of California’s Form 3895C and the reporting requirements associated with it as these reporting requirements are in addition to those required by the ACA’s Employer Mandate.
As a reminder to employers in conjunction with the Employer Shared Responsibility Payment (ESRP), the ACA’s Employer Mandate, Applicable Large Employers (ALEs – organizations with 50 or more full-time employees and full-time-equivalent employees) are required to offer Minimum Essential Coverage to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H penalties.
Self-funded employers of California that need assistance in meeting the state filing deadline for the Individual Mandate should contact us to learn about how our full-service ACA CompleteSM service works. ACA Complete also files and furnishes forms 1094-C and 1095-C to the IRS and to your full-time workforce .
For information on ACA penalty amounts, affordability percentages, important filing deadlines, steps for responding to penalty notices, and best practices for minimizing IRS penalty risk, download the ACA 101 Toolkit.