Hardship Exemption Rules

The Affordable Care Act (Obamacare) included a “shared responsibility payment,” which in reality is a penalty for not having health insurance. Along with this penalty came a whole slew of exemptions from the penalty, including some that were designated as “hardship” exemptions. However, the hardship relief from the penalty required pre-approval from the government health insurance marketplace, which required the applicant to provide documentary evidence of the hardship. Once approved, the applicant was issued an exemption certificate number (ECN) that needed to be included on the individual’s tax return to avoid the penalty.

Hours after being sworn in, President Trump signed an executive order aimed at reversing the Affordable Care Act. The executive order states that the Trump administration will “seek prompt repeal” of the law. To minimize the “economic burden” of Obamacare, the order instructs the secretary of the Department of Health and Human Services and other agency heads to “waive, defer, grant exemptions from, or delay the implementation” of any part of the law that places a fiscal burden on the government, businesses or individuals.

As a result of President Trump’s executive order, the Centers for Medicare & Medicaid Services (CMS) announced on September 12, 2018, that consumers can claim a hardship exemption for not purchasing insurance and avoid the penalty for not being insured for 2018, either by:

  • Obtaining an ECN through the existing application process or
  • Simply entering the hardship code on their federal income tax return (a form of self-certification).

However, the CMS cautioned that consumers should keep any documentation that demonstrates qualification for the hardship exemption with their other tax records.

The following are the more common hardship exemptions affected by this change. For a complete list and additional details related to qualifying for these hardships, visit the CMS website.

  • Homelessness
  • Being evicted or facing eviction or foreclosure
  • Receiving a shut-off notice from a utility company
  • Experiencing domestic violence
  • Death of family member
  • Fire, flood or other disaster that caused substantial damage
  • Bankruptcy
  • Medical expenses that can’t be paid, resulting in substantial debt
  • Increased medical expenses to care for a member of the family
  • Claiming a child who has been denied Medicaid or CHIP coverage
  • Ineligibility for coverage because the state didn’t expand Medicaid

The shared responsibility payment and exemptions are determined on a monthly basis, and a person is eligible for a hardship exemption for at least the month before, the month(s) during and the month after the specific event or circumstance that creates the hardship.

There are a variety of other exemptions in addition to the hardship exemptions, and 2018 is the final year the shared responsibility payment will be assessed. The Tax Cuts and Jobs Act (tax reform) has eliminated the penalty beginning in 2019.

If you have any questions related to the penalty for not having health insurance and the the penalty exemptions, please contact us.

Not-Being-Insured Penalty Eliminated

Note: This is one of a series of articles that explains how the various tax changes in the GOP’s Tax Cuts & Jobs Act (referred to as “the Act” in this article), which passed in late December of 2017, could affect you and your family—both in 2018 and in future years. This series offers strategies that you can employ to reduce your tax liability under the new law.

Beginning in 2014, the Affordable Care Act, also known as Obamacare, imposed a “share-responsibility payment” on taxpayers who did not sign up for minimum essential health coverage. This payment is essentially a penalty for not being insured.

The penalty was phased in during 2014 and 2015, and it became fully effective in 2016. The penalty also began to be inflation adjusted after 2017.

The penalty for 2018 is the greater of the sum of the family’s flat dollar amounts or 2.5% of the amount by which the household’s income exceeds the income-tax filing threshold.

For 2018, the flat dollar amounts are $700 per year ($58.33 per month) for each adult and $350 per year ($29.17 per month) for each child; the maximum family penalty using this method is $2,100 per year ($175 per month).

As an example, say that a family of four (2 adults and 2 children) has a household income that exceeds the income-tax filing threshold by $100,000. This family would have a maximum penalty equal to the greater of the flat dollar amount ($700 + $700 + $350 + $350 = $2100) or 2.5% of the income amount (2.5% × $100,000 = $2,500). Thus, the maximum penalty would be $2,500. However, the penalties are applied separately in each month, and they do not apply in a given month if certain exceptions are met.

Because of the Act, in 2019, the shared responsibility payment will no longer exist, thus allowing taxpayers the discretion of choosing to not have any coverage without the fear of being subject to a substantial penalty. However, the penalty still applies for 2018.

This does not impact the health care subsidy for low-income families, which is known as the premium tax credit and which is available for policies that are acquired through a government insurance marketplace. It also does not affect the penalties assessed on employers that do not offer affordable insurance to employees and that have 50 or more full-time-equivalent employees.

If you have any questions or would like additional information, please contact us.

Did You Have to Repay Part of Your Obamacare Subsidy and Don’t Know Why?

As part of Obamacare, most everyone is required to be insured or pay a penalty. However, this created a substantial financial burden for lower-income families. To alleviate this situation, Obamacare included a subsidy, referred to as the premium tax credit (PTC), to help them pay the cost of the insurance.

That credit is based on family size, household income, household income in relationship to the federal poverty line tables and the cost of the family’s insurance.

The primary variable in determining the actual credit is the family’s household income, so the exact amount of the PTC cannot be determined until after the close of the tax year. Providing the credit after the fact on the tax return for the year does not help families to pay their premiums during the year, so to alleviate that problem, Obamacare allows families to estimate their family income when they apply for their insurance, and the government insurance marketplaces will estimate the PTC and allow it as a subsidy in advance. That subsidy is called the advance premium tax credit (APTC) and reduces the amount of the insurance premiums that the family must pay during the year.

Then, when the tax return for the year is prepared, the actual household income is known, and the actual PTC to which the family is entitled is determined. If the PTC is greater than the APTC, then the difference is credited on the tax return. However, if the APTC – the subsidy paid in advance – is greater than the actual PTC the family is entitled to, then the difference must be repaid.

So, if you had to repay some amount of the credit, it was generally due to your household income being underestimated when you signed up for the insurance, thus causing the APTC to be larger than the PTC. This is one of the hazards of estimating your household income in advance because you may receive unexpected income during the year, such as a raise, a bonus, a spouse starting to work, selling some stocks for a gain…the list goes on.

There are other reasons for a mismatch between the APTC and PTC. For instance, if your employer offered you affordable, compliant insurance for any month during the year, then you were not eligible for the PTC that month. (The IRS knows when this occurred based on a report that employers have to file.) Other things that can change the PTC include changes in family size created by marriage, divorce, children getting married, deaths, etc. Another reason is when a married couple is receiving APTC from the marketplace and files married filing separate (MFS) returns instead of filing jointly. The MFS filing status does not allow them to claim the PTC.

You can mitigate the repayments by keeping the insurance marketplace updated on your estimated family income and family size and allowing it to make appropriate adjustments to the APTC.

If you have questions related to the premium tax credit or the repayments, please give us a call.

Health Reimbursement Arrangements Approved For Qualified Small Employers

Under the Affordable Care Act (ACA or Obamacare), a health reimbursement arrangement (HRA) is treated as a group health plan, and as such, it has to meet all of the ACA’s market-reform requirements, which is not possible for the typical HRA. Stand-alone HRAs do not meet two key requirements of the ACA in that they:

  • Limit annual dollar benefits for the insured and
  • Fail to provide certain preventive-care services without cost-sharing requirements.

Previously, under the IRS’s interpretation of the ACA law, employers who offered stand-alone HRAs were subject to a draconian excise tax penalty of $100 per day per employee (maximum: $36,500 per year). That is a chilling penalty for any small employer, and it caused most of them to back away from offering any sort of health coverage for their employees.

To alleviate this problem, Congress passed the 21st Century Cures Act, which is generally effective beginning in 2017, and which created a “qualified small-employer HRA” that is not treated as a group health plan for income tax purposes. Thus, a qualified small-employer HRA will not face the $100 per day excise tax that is levied on group health plans that don’t meet the ACA’s market reform requirements.

To qualify as a small-employer HRA, a plan must meet the following requirements:

  1. An eligible employer maintains it. An eligible employer is one that employs fewer than 50 employees (in full-time equivalents) and that does not offer a group health plan to any of its employees.
  2. The HRA is provided on the same terms to all eligible employees except:
    • Those who have not completed 90 days of service,
    • Those under the age of 25,
    • Part-time workers (generally those working an average of fewer than 30 hours per week),
    • Seasonal workers (generally those employed for 6 months or fewer during the year),
    • Employees covered by a collective bargaining unit, and
    • Certain nonresident aliens.
  3. The HRA is funded solely by an eligible employer, with no salary-reduction contributions.
  4. The HRA only reimburses the employees after being provided with proof of their medical expenses.
  5. The HRA limits reimbursements to $4,950 (or $10,000 if the plan includes family members) per year. Amounts are subject to inflation adjustments for years after 2016. For employees who are covered for less than a full year, the dollar limits are prorated.An employee’s premium tax credit is reduced for any coverage month when the employee is provided with a qualifying HRA. To prevent “double dipping,” if the employee purchases health insurance through the Marketplace, that employee is required to notify the Marketplace of his or her permitted benefit for the year under the HRA.

Partners in a partnership or limited liability company (LLC) or owners and officers with greater than a 2% share of a Subchapter S corporation must treat any reimbursement under an HRA plan as taxable income, and may then deduct as an above-the-line deduction their cost of health insurance that was included in income. For greater than 2% shareholders of a Subchapter S corporation the taxable reimbursements are subject to income tax withholding.

If you have questions related to how your business could use a qualified small-employer HRA, please give this office a call.

Maximizing Your Affordable Care Act Insurance Supplement

If you are getting your health insurance through a government Marketplace, you should be aware of several issues that can adversely affect the amount of financial assistance you receive to help pay for the insurance. Consider these factors to maximize your Affordable Care Act Insurance Supplement.

Background: Generally, individuals whose household income is between 100 and 400% of the federal poverty level will receive financial assistance to help them pay for the cost of their health insurance when purchased through the Marketplace. The assistance is based upon the family’s household income, and the lower the household income, the greater the assistance. Household income includes the modified AGI of all family members who are required to file a return; the modified AGI (MAGI) is a taxpayer’s regular AGI plus non-taxable Social Security and Railroad Retirement benefits, tax-exempt interest and excluded foreign earned income.

There are factors that can increase a taxpayer’s MAGI, thus reducing or eliminating the financial assistance, without providing the family any actual increase in income.

Gambling Winnings – The tax code requires taxpayers to add gambling winnings to their gross income and deduct their losses as an itemized deduction on Schedule A to the extent of their winnings. So, even if the taxpayer has losses equal to the winnings and actually does not have any net winnings, the gambling winnings will still be included in the taxpayer’s MAGI and thus will reduce the amount of financial assistance they receive to pay their health insurance premiums.

Children Working – You may have young adult dependents included in your tax family who may be working part time, such as at your local fast food restaurant. If they are required to file a tax return, then their income will be added to the family’s household income. Generally, a child who is claimed as a dependent is required to file a tax return if their income exceeds the standard deduction for the year. For 2017, the standard deduction is $6,350. Thus, if a dependent child has more than $6,350 of income, that income is added to the family’s household income and will reduce the financial assistance provided for purchasing health insurance.

Children Working & Receiving Social Security Benefits – If your child is receiving Social Security benefits, the benefits are generally non-taxable. However, if the child is required to file a tax return, as discussed in the prior paragraph, then all of the non-taxable Social Security benefits would also have to be added to the household’s income.

Hobby Income – When you have income from an activity that is not for profit, such as a hobby, the income from the hobby is added to your gross income, and the expenses associated with that income are deducted as an itemized deduction. So, even if the taxpayer has no profit because of the expenses, the hobby income, like gambling income, will still be included in the taxpayer’s MAGI and thus will reduce the amount of financial assistance they receive related to purchasing their health insurance.

IRA Contributions – On the other hand, making an IRA or other deductible pension contribution will reduce the MAGI and can increase the amount of financial assistance received that goes to purchasing health insurance.

If you are obtaining your health insurance through a government Marketplace and are receiving financial assistance (also referred to as an “advance premium tax credit”), and if any of the situations mentioned above apply to you and you have questions, please give this office a call.

Have Fewer Than 50 Employees? Here is How the Health Care Act Affects You

When Congress came up with the Affordable Care Act (ACA), they carved out two basic categories of businesses, those with 50 full-time employees and/or full-time equivalent employees (FTEEs) and those with fewer than 50 employees. Under the ACA, businesses in the first category have a requirement to offer affordable insurance to their full-time employees and their dependents. If you are an employer with fewer than 50 full-time employees or FTEEs, you are not subject to the insurance requirement, but there are still some ACA issues you need to be aware of.

First of all, you need to make sure you are in the under-50 category, because the penalties can be backbreaking if you aren’t and you didn’t offer affordable health coverage. Determining if your business meets or exceeds the 50-employee threshold requires maneuvering through lots of special rules, and not all of these intricacies can be covered in this article.

Generally, the 50-employee threshold is determined by adding together the number of full-time employees and the total number of full-time equivalent employees for each calendar month of the prior calendar year and dividing that total number by 12.

Full-time employees are generally those working 30 hours or more per week, and the number of FTEEs is determined by dividing all the hours worked by part-time employees for the month by 120. In addition, certain employees, such as seasonal employees, are excluded from the count. If you have any doubt whether you are under the 50-employee threshold, please call this office for assistance.

If you are under the 50-employee threshold, you are not subject to any ACA information reporting that is required of larger employers—with one exception. If you provide insurance and you are self-insured, then you are required to annually file a Form 1094-C along with a 1095-C for each employee.

If you wish to provide insurance to your employees, even though you are not required to since you are under the 50-employee threshold, you are allowed to purchase health insurance coverage through the Small Business Health Options Program, better known as the SHOP Marketplace. Even though purchased through the Marketplace, this type of group coverage does not qualify your employees for the premium tax credit subsidy they might otherwise be entitled to if they acquired coverage directly from the individual policy Marketplace.

As an enticement for employers that have fewer than 25 FTEEs with average annual wages of less than $50,000 to provide health insurance to their employees, the ACA added a small business health care tax credit. To qualify, the business needs to purchase the health insurance through the SHOP Marketplace and cover at least 50 percent of their full-time employees’ premium costs. However, this credit applies for only 2 years, after which time the employer will receive no further financial assistance from Uncle Sam. A recent General Accounting Office report noted that far fewer small businesses were taking advantage of the credit than expected by Congress.

If you have questions, need assistance in determining whether you meet the 50-employee threshold, or would like to determine the benefit of the small business health care tax credit, please give this office a call.

Employer Offered You Health Insurance but You Got Yours through the Marketplace? You May Be in for an Unpleasant Surprise!

One of the key provisions of Obamacare is the premium tax credit (PTC), which serves as a subsidy for the cost of health insurance for lower-income individuals and families. Although the credit is determined at the end of the year based upon income, taxpayers are allowed to estimate their income and receive the credit in advance, thereby reducing their premium costs.

Another key provision of Obamacare requires large employers to offer full-time employees affordable healthcare insurance. The term “affordable” means that the employee’s insurance costs less than 9.66% (2016 percentage) of the employee’s household income. In addition, because the government wants to limit its outlay for the PTC, the law denies PTC to employees who are offered affordable healthcare insurance by their employer.

This is where a potential problem arises! Quite often, the cost of insurance subsidized by the advance PTC obtained through the Marketplace is substantially less costly than the “affordable” insurance offered by the employer; as a result, the employee will instead obtain the less expensive insurance through the Marketplace, while not realizing that they are not entitled to the PTC because the employer offered them “affordable” insurance.

Prior to 2015, the government had no way of determining who was offered “affordable” insurance by their employer and therefore was unable to enforce the “no PTC rule.” However, beginning in 2015, employers with 100 or more equivalent full-time employees were required to file the new Form 1095-C, which shows month-by-month when an employee was offered “affordable” healthcare insurance. Generally, the employer is required to furnish a copy of Form 1095-C (or a substitute form) to the employee. Beginning in 2016, even employers with 50 or more equivalent full-time employees are required to file 1095-Cs.

The IRS will begin matching the information on the 1095-Cs that the employers have filed with taxpayers who claimed the PTC for months during which they were also offered “affordable” insurance by their employer. Those taxpayers will be receiving notices from the IRS requiring them to repay the premium tax credit for the months when they were offered affordable care.

If you are concerned that you claimed the PTC and might be subject to repayment, you can look at your copy of Form 1095-C from your employer. Check line 14 and see if there are entries in any of the months. The entries will be codes, which are explained on the reverse of the form.

If you need assistance or additional information related to Form 1095-C and its impact on the PTC, please give us a call at 212-697-8540.

Penalty for Not Having Health Insurance Surprises Many

Many taxpayers are surprised by the size of the penalty being imposed for not having health insurance in 2015. This may be a wake-up call for many who didn’t realize the penalty is being phased in over a three-year period between 2014 and 2016, and the increases are substantial each year.

The penalty is determined by two methods, the flat dollar amount or a percentage of the taxpayer’s income, and the penalty is the GREATER of the two amounts.

The flat dollar amount is the sum of fixed dollar amounts for the year that apply to each member of the taxpayer’s family. However, there is a cap on the total flat dollar amount, which is equal to 3 times the adult penalty for the year. The table below shows the amount per family member and maximum flat dollar amounts for each of the three penalty phase-in years.

Year    2014 2015 2016
Adult Family Member $ 95.00 $325.00 $   695.00
Member Under Age 18 $ 47.50 $162.50 $   347.50
Maximum Flat Dollar Penalty $285.00 $975.00 $2,085.00


Example: Suppose, in 2015, a family of 3 (2 married adults and 1 child) all went without insurance for the entire year. Their flat dollar amount penalty would be $812.50 ($325 + $325 + 162.50).


The percentage-of-income penalty is a little more complicated, as the income used in the computation is the taxpayer’s household income reduced by the taxpayer’s tax return filing threshold for the year. Household income is the adjusted gross income from the tax returns for the year of all members of the taxpayer’s family who must file a tax return for income tax purposes.

The table below shows the percentage-of-income penalty for each of the three penalty phase-in years.

Year   2014 2015 2016
Percentage of income 1.0% 2.0% 2.5%


Example: Suppose the family in the previous example has a household income of $80,000 and their filing threshold is $20,600. Thus the income used in the computation would be $59,400 ($80,000 – $20,600), and the percentage-of-income penalty would be $1,188 ($59,400 x .02).

In our example, the taxpayer’s penalty for 2015 would be the greater of the two methods, which is $1,188. This substantially penalizes higher-income taxpayers, who can more readily afford health care insurance.

Another surprise to some taxpayers is that even if only one member of the family is uninsured, the percentage-of-income penalty applies if it is larger than the flat dollar amount for that one employee.

In closing, the penalties are actually computed by the month, so for example, if a taxpayer is uninsured for five months, then 5/12 of the penalty will apply.

If you have questions related to the penalty for not being insured or other tax provisions of the Affordable Care Act, please give the office a call.

2015 Transition Relief under the Employer Shared Responsibility Provisions

Under the Affordable Care Act, certain employers—referred to as applicable large employers (ALEs)—are subject to the employer shared responsibility provisions, which require ALEs to offer affordable minimum essential coverage healthcare coverage that provides minimum value to full-time employees and their dependents (but not their spouses). Failure to do so can result in the employer being liable for substantial penalties that the government refers to as shared responsibility payments.

Note: Whether an employer is subject to employer shared responsibility provisions is based upon the number of equivalent full-time employees (EFTEs) employed by the employer, generally in the prior year. However, the rules that determine who is a full-time employee are complicated. Generally, anyone who works at least 30 hours per week (or 130 hours in a calendar month) is considered a full-time employee. Part-time employees are those who are not full-time employees. All the hours worked by part-time employees for the month are combined and divided by 120, and this result is added to the number of full-time employees. This sum is the number of EFTEs for the month.

Example – Equivalent Full-Time Employees – For his business, John has 45 full-time employees and 20 part-time employees. In January 2016, his part-time employees worked 960 hours. That is the equivalent of 8 (960/120) full-time employees. Thus, John employed 53 (45 + 8) EFTEs in January. In this case, John’s business is subject to the employer shared responsibility provisions, but it is only required to offer coverage to full-time employees and their dependents.

The employer shared responsibility provisions were first effective on January 1, 2015, but transition relief from certain requirements is available for 2015, including the following:

  • ALEs with fewer than 100 EFTEs won’t be assessed an employer shared responsibility payment for 2015 provided that certain conditions were met regarding the employer’s maintenance of the workforce and preexisting health coverage. ALEs that are eligible for this relief must provide a certification of eligibility as part of the required information reporting for 2015.
  • ALEs were not required to offer coverage to full-time employees’ dependents for the 2015 plan year, provided that they meet certain conditions—including that they take steps to arrange for such coverage to begin in the 2016 plan year and that they do not drop current dependent coverage.
  • In general, if an ALE does not offer minimum essential coverage to at least 95 percent of its full-time employees and their dependents, it may owe an employer shared responsibility payment based on its total number of full-time employees. For 2015, 70 percent is substituted for 95 percent. However, even if an employer offers minimum essential coverage to at least 70 percent of its full-time employees and their dependents for 2015, it may still owe the separate—generally smaller in the aggregate—employer shared responsibility payment that applies for each full-time employee who receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace.
  • If an ALE is subject to the employer shared responsibility payment because it doesn’t offer minimum essential coverage to its full-time employees and their dependents, the annual payment is generally $2,000 for each full-time employee—adjusted for inflation—after excluding the first 30 full-time employees from the calculation. For 2015, if ALEs subject to this employer shared responsibility payment have 100 or more EFTEs, their payments will be calculated by reducing the number of full-time employees by 80 rather than 30.
  • Transition relief is available for certain employers that sponsor non-calendar-year plans for the months in 2015 prior to the beginning of the 2015 plan year, if the employer and the plan meet various conditions.
  • Rather than being required to measure their ALE status based on the number of EFTEs for all twelve months of 2014, employers may instead base their 2015 ALE status on any consecutive six-month period from 2014 – as chosen by the employers.

For an employer with a non-calendar-year plan, the first four types of transition relief listed above also apply for the months in 2016 that are part of the 2015 plan year.

If you have questions related to your company’s employer shared responsibility, please give this office a call.

Affordable Care Act Reporting Relief for Employers

Beginning for the 2015 tax year, Applicable Large Employers (ALEs) are required to file Forms 1095-C and 1094-C with the IRS and provide a copy of the 1095-C to each of their employees. An ALE is generally an employer with 50 or more equivalent full time employees (EFTEs) in the prior year. Even though ALE’s with 99 or fewer EFTEs are not subject to the insurance mandate for 2015, they are subject to the 1094-C and 1095-C filing requirements for 2015.

IRS Form 1095 Reporting Extension

Because this is the first year for this requirement, the IRS has decided to provide first year (2015) filing relief for Forms 1095-B and 1095-C. The due dates for furnishing these forms are extended as follows:

  • The due date for providing the 2015 Form 1095-B and the 2015 Form 1095-C to the insured and employees is extended from February 1, 2016, to March 31, 2016.
  • The due date for health coverage providers and employers to furnish the 2015 Form 1094-B and the 2015 Form 1094-C to the IRS is extended from February 29, 2016, to May 31, 2016 if not filing electronically.
  • The due date for health coverage providers and employers electronically filing the 2015 Form 1094-B and the 2015 Form 1094-C with the IRS is extended from March 31, 2016, to June 30, 2016.

While the IRS is prepared to accept information reporting returns beginning in January 2016, employers and other coverage providers who can’t meet the original deadlines are encouraged to furnish statements and file the information returns as soon as they are ready.

The information provided to individuals on their copy of Form 1095-B or 1095-C is generally used to confirm that the individual had minimum essential coverage (and thus avoid the penalty that applies when not covered for the full year). However, with the extension of the filing dates for these forms, individuals may not have the forms in hand before filing their 2015 returns. For 2015 only, individuals who rely on other information received from their coverage providers about their coverage for purposes of filing their returns need not amend their returns once they receive Form 1095-B or Form 1095-C or any corrections, according to the IRS.

Likewise, individuals who, when filing their 2015 income tax returns, rely upon other information received from employers about their offers of coverage for purposes of determining eligibility for the premium tax credit need not amend their returns once they receive their Forms 1095-C or any corrected Forms 1095-C.