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This year will mark the first year that California residents will face a new reality of the Individual Mandate. While 2019 was a year of reprieve from the obligation for individuals to obtain healthcare coverage when the federal Individual Mandate was zeroed out in 2019, a new state Individual Mandate in California has sprouted in 2020 to fill the void.
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 a flat dollar amount based on the number of people in a household or 2.5% of gross household income that exceeds California’s filing threshold, whichever is higher. For a household size of 1, if you make less than $46.050, your penalty may be $750. If you have a household size of 4 (2 adults and 2 kids), and you make less than $142,000, you may pay $2,250.
State residents interested in seeing their estimated penalty for the 2020 tax year should review the Individual Shared Responsibility Penalty Estimator.
Some California residents will be exempt from penalty assessments, including individuals whose income is below the tax filing threshold, who are members of a health care sharing ministry, or who are incarcerated. A full list of residents exempt from an individual penalty assessment can be found here.
One way the state is identifying individuals who have not complied with California’s Individual Mandate to obtain Minimum Essential Coverage (MEC) 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 which employees have enrolled on the employer’s health plan. Final Instructions for Form 3895C can be viewed here. The information was required to be furnished to employees by January 31, 2021, and are due for filing with California’s Franchise Tax Board by March 31, 2021.
Self-insured employers 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) (employers 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.
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 employers and residents that fail to comply. You can read about them here.
Employers, as you begin to prepare for year-end filings and reporting processes for years to come, consider outsourcing ACA compliance as the regulatory landscape continues to grow in complexity. Contact us to learn how ACA Complete can help your organization minimize the administrative burden associated with ACA compliance.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.