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California residents that fail to obtain qualified health coverage this year will receive a penalty from the state for an amount larger than first projected.
Per California’s Individual Mandate, beginning January of this year, state residents can be charged a penalty based on the California Consumer Price Index. For the 2020 tax year, the flat penalty amount is $750 per adult in the household and $375 per child. Remember that the California Individual Mandate 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. That means a family of four in California would face a minimum penalty of $2,250.
Some California residents will be exempt from penalty assessments, including individuals whose income is below the tax filing threshold, are a member of a health care sharing ministry, or are incarcerated. A full list of residents exempt from an individual penalty assessment can be found here.
State residents interested in seeing their estimated penalty for the 2020 tax year should review the Individual Shared Responsibility Penalty Estimator.
The state of California, having introduced the country’s first special enrollment period, has made obtaining health coverage increasingly available to Americans in need. The state has also expanded subsidies to individuals and families with incomes beyond 400% of the FPL, capping now at 600%. The expansion may take shape across the entire U.S. if the ACA Enhancements Act is passed.
Employers too, have responsibilities to comply with under California’s Individual Mandate. For the 2020 tax year, self-funded employers will need to report on the employees that had health coverage throughout the year. The information must be furnished to employees by January 31, 2021 and filed with California’s Franchise Tax Board by March 31, 2021. These are reporting requirements in addition to those of the Employer Mandate, which need to be submitted annually with the IRS.
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 (MEC) 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. The IRS is issuing these penalties through Letter 226J.
Several other states, including the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont have also written into law statewide Individual Mandates. Many of them also have penalties in place for residents that fail to comply.
Employers, if you have operations in the state of California or any of the other aforementioned states, keep in mind the state level Individual Mandate when reviewing your ACA compliance on a monthly basis. And with businesses returning back to work amid COVID-19, be sure your organization is in compliance with the ACA to avoid receiving any IRS penalty assessments. If you’re unsure of your current ACA compliance status, contact us to receive an ACA Penalty Risk Assessment.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.