What to Expect from California’s Individual Mandate
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The new year is almost upon us and a number of states including California will have their statewide Individual Mandate take effect.
Come January 1, 2020 employers and employees alike will have to comply with California’s rather stringent Individual Mandate. For California residents, this law effectively replaces the ACA’s Federal Individual Mandate which had its penalty eliminated at the start of 2019.
California’s Individual Mandate will require state residents, and any spouse or dependent, to enroll in qualified insurance coverage for each month of the year, with exemptions for individuals on the basis of financial hardship or religious beliefs as determined by the state’s healthcare exchange, Covered California or face a penalty.
The penalty state residents will face for failing to comply is calculated at a rate of $695 per adult and $347.50 per child or 2.5% of gross income above the filing threshold, whichever is higher.
The law also puts California out front as the state offers subsidies to individuals and families with income between 400% and 600% of the federal poverty level. According to a post by Mercer, “this range equates to 2019 household income of approximately $50,000 to $75,000 for a single individual and $103,000 to $155,000 for a family of four.”
The move to expand the subsidies is an effort to help address health insurance affordability issues. Elsewhere in the United States, only individuals and families with an income between 100% and 400% are eligible for government subsidies for purchasing health insurance through Healthcare.gov or a state-exchange.
Employers will also have new state level ACA reporting requirements to comply with.
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.
Under 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.
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, if you have operations in the state of California or any of the other aforementioned states, keep in mind the state level Individual Mandate as the new year approaches. Some third-party organizations will handle the state-level reporting in addition to filing with the IRS each year at no extra cost.
To learn more about ACA compliance for the 2019 tax year, click here.
For ACA reporting deadlines in 2020 for the 2019 tax year, organizations should review this link for important dates and requirements.
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