Quickfinder. Health Care Reform Quickfinder Handbook (2018 Edition) Updates for the Tax Cuts and Jobs Act of 2017 and Other Recent Guidance

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1 Quickfinder Health Care Reform Quickfinder Handbook (2018 Edition) Updates for the Tax Cuts and Jobs Act of 2017 and Other Recent Guidance Instructions: This packet contains marked up changes to the pages in the Health Care Reform Quickfinder Handbook that were affected by the Tax Cuts and Jobs Act of 2017, which was enacted after the Handbook was published. Additionally, changes were made based on other IRS guidance issued after the Handbook was published. To update your Handbook, you can make the same changes in your Handbook or print the revised page and paste over the original page.

2 Health Insurance Mandate for Individuals Replacement Page 1/2018 Overview Patient Protection and Affordable Care Act The Patient Protection and Affordable Care Act (P.L ), signed March 23, 2010, as amended by the Health Care and Education Reconciliation Act, signed March 31, 2010, is collectively referred to as the Affordable Care Act (ACA). Individual mandate. The ACA requires most individuals to have health insurance coverage that meets certain standards, obtain an exemption from the mandate or pay a penalty. Under this provision, individuals must maintain minimum essential coverage (MEC) for themselves and their dependents. See Minimum essential coverage (MEC) on Page 1-7. Those who do not maintain MEC or qualify for an exemption may be required to pay a penalty (that is, the individual shared responsibility penalty) for each month of noncompliance. Taxpayers who have MEC for each month of a year and whose family members have MEC for each month they are part of the tax household can check the box on line 61 of Form 1040 for full-year coverage. If the box on line 61 cannot be checked, the flowchart and worksheets in the Form 8965 (Health Coverage Exemptions) instructions are used to calculate the amount of the individual shared responsibility payment due with the return because one or more family members did not have the required MEC or did not have an exemption for each month of the year. Exemptions. Some individuals are eligible for an exemption from the requirement to maintain MEC. An individual is not subject to the individual shared responsibility penalty for any month that he qualifies for an exemption. Exempt individuals complete Form 8965 to show they are not subject to a penalty for some or all months of the year. See a copy of Form 8965 and its instructions starting on Page Insurance marketplaces. To assist individuals in obtaining health insurance coverage that meets the individual mandate requirements, the ACA provides for state insurance marketplaces. Individuals can purchase health insurance through the state marketplaces. See Tab 2 for further discussion of the state marketplaces. Federal subsidies. Certain low-income and moderate-income individuals and families are able to receive federal subsidies to help pay for premiums and cost-sharing if they purchase coverage through a state insurance marketplace. See Tab 3 for further discussion of the premium tax credit and cost-sharing-reduction subsidy. Tab 1 Topics Overview... Page 1-1 Who Is Required to Have Health Insurance?... Page 1-1 Individuals Who Are Exempt From the Shared Responsibility Penalty... Page 1-1 What Is the Required Health Insurance Coverage?... Page 1-7 Individual Shared Responsibility Penalty... Page 1-10 Calculating the Shared Responsibility Penalty (Payment)... Page 1-10 Calculating the Individual Shared Responsibility Penalty Worksheet (2017)... Page 1-13 Form 8965 (Health Coverage Exemptions)... Page 1-15 Instructions for Form Page 1-16 Who Is Required to Have Health Insurance? Most individuals must ensure that they, and their dependents have MEC for each month of the year or qualify for an exemption. (IRC Sec. 5000A) Generally, the individual mandate applies to U.S. citizens and permanent residents. Additionally, any foreign nationals residing in the U.S. long enough during a calendar year to qualify as resident aliens for income tax purposes are subject to the mandate. However, foreign nationals who do not qualify as resident aliens are not subject to the mandate, even if they are required to file a federal income tax return. Individuals Who Are Exempt From the Shared Responsibility Penalty Generally, applicable individuals who do not maintain MEC are subject to the shared responsibility penalty. However, an individual who does not maintain MEC is not subject to the individual shared responsibility penalty for any month during which he qualifies for one or more of the following exemptions for any day during the month: Member of a recognized religious sect who has a religious conscience exemption. Member of a health care sharing ministry. Incarcerated individual, other than incarcerated pending the disposition of charges. Member of a federally recognized Indian tribe. Individual qualifying for services through an Indian health care provider or the Indian Health Service. Individual with a short coverage gap. Individual whose household income or gross income is below the threshold for filing an income tax return. U.S. citizen living abroad or noncitizen meeting certain criteria. Individual who was born or adopted, or who died during the calendar year. Individual ineligible for Medicaid solely because the state of residence did not participate in Medicaid expansion. Individual with household income below 138% of the applicable year federal poverty line (FPL) for the family size who resides in a state that did not expand Medicaid coverage. Individual enrolled in certain limited benefit Medicaid or CHIP programs that are not considered MEC. Individual who qualifies for a general hardship exemption. Individual who could not afford coverage based on actual household income. Individual who could not afford coverage based on projected household income. Individual in a family where the aggregate cost of selfonly coverage for two or more employed individuals is unaffordable and family coverage is unaffordable. Note: See the chart Determining Exemptions to the Individual Shared Responsibility Penalty on the front cover of this Handbook. Law Change Alert: The 2017 Tax Cuts and Jobs Act 2018 reduces Edition the individual Health Care shared Reform Quickfinder responsibility penalty to zero for months beginning after December 31, However, the penalty remains Handbook 1-1 in effect for each month of 2018.

3 Religious Exemptions A religious conscience exemption is only granted to a member of a recognized religious sect or division as described in IRC Sec. 1402(g)(1), and an adherent of established tenets or teachings of such a sect or division because he is conscientiously opposed to acceptance of benefits of any private or public insurance that makes payments in the event of death, disability, old-age or retirement or makes payments toward the cost of, or provides services for, medical care (including the benefits of any insurance system established by the Social Security Act). [IRC Sec. 5000A(d)(2)(A); Reg A-3(a)] Such an exemption may be granted only if the application contains or is accompanied by evidence of an individual s membership in, and adherence to the tenets or teachings of, the sect or division thereof and his waiver of all benefits and other payments under Titles II and XVIII of the Social Security Act on the basis of his wages and self-employment income as well as all benefits and other payments to him on the basis of the wages and self-employment income of any other person. An exemption may not be granted to any individual if any benefit or other payment under Titles II and XVIII of the Social Security Act became payable or, but for Section 203 or 222(b) of the Social Security Act, would have become payable at or before the time of the filing of such waiver. A religious conscience exemption certification is only issued by a state insurance marketplace and not by the IRS [Reg A- 3(a)(2)]. The marketplace will accept a copy of an approved IRS Form 4029 (Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits) as proof that an individual qualifies for this exemption. Note: An individual who is a member of a sect that is not on the SSA approved list (that is, the sect has not received an approved Form 4029) does not qualify for this exemption. A religious conscience exemption issued for an adult age 21 or older is valid until the individual notifies the marketplace that he is no longer a member of the religious sect [HHS Reg. 45 CFR (c)(2)]. Therefore, an individual does not need to reapply for this exemption each year. Exemptions issued for children are valid until the month after their 21st birthday. At that time, the individual must submit a new application as an adult to maintain the exemption. An individual must report the religious conscience exemption each year in Part I of Form 8965 filed with his federal income tax return. The Exemption Certificate Number (ECN) received from the marketplace when the exemption was granted is entered in column (c) of Part I. See a copy of Form 8965 and its instructions starting on Page Health Care Sharing Ministry A health care sharing ministry is an organization described in IRC Sec. 501(c)(3) and exempt from taxation under IRC Sec. 501(a) whose members share a common set of ethical or religious beliefs and share medical expenses among members in accordance with those beliefs and without regard to the state in which a member resides or is employed. The members must retain membership even after they develop a medical condition. The organization (or a predecessor of the organization) (1) must have been in existence at all times since December 31, 1999, (2) medical expenses of its members must have been shared continuously and without interruption since at least December 31, 1999 and (3) an annual audit must be performed by an independent certified public accounting firm in accordance with generally accepted accounting principles and made available to the public upon request. [Reg A-3(b)(2)] The health care sharing ministry exemption can be claimed by completing Part III of Form 8965 when filing a federal income tax return. Before September 1, 2016, individuals could also be granted this exemption by a marketplace. Individuals who received this exemption from a marketplace and have an exemption certificate continue to report the exemption in Part I of Form 8965 for as long as the exemption is valid. See a copy of Form 8965 and its instructions starting on Page Incarcerated Individual An individual is an exempt individual for a month that includes a day on which the individual is incarcerated. The term incarcerated means confined, after the disposition of charges, in a jail, prison or similar penal institution or correctional facility [Reg A-3(d)(2)]. This For exemption 2017, this can exemption be claimed is claimed on the individual s on the individual s federal federal income income tax return filed for the year by completing Part III of Form tax return filed for the year by completing Part III of Form Before September 1, 2016, individuals could also be granted this exemption Before September 1, 2016, this exemption could also be granted by by a marketplace. Individuals who received this exemption from a a state marketplace and, therefore, the exemption could have been marketplace and have an exemption certificate continue to report the reported in Part I of Form 8965 for years prior to exemption in Part I of Form 8965 for as long as the exemption is valid. See a copy of Form 8965 and its instructions starting on Page Individuals Who Cannot Afford Coverage An individual is exempt for a month in which he lacks affordable coverage [Reg A-3(e)]. An individual lacks affordable coverage in a month if the individual s required contribution (determined on an annual basis) for MEC for the month exceeds 8.16% in 2017 (8.05% in 2018) of the individual s household income. An individual s household income is increased by any amount of the required contribution made through a salary reduction arrangement that is excluded from gross income. This is referred to as adjusted household income. [Reg A-3(e)(1)] The exemption for unaffordable coverage based on actual household income is claimed in Part III of Form 8965 filed with an individual s income tax return. An exemption for unaffordable coverage based on projected income (see Using projected household income instead of actual household income on Page 1-4) is reported in Part I of Form See a copy of Form 8965 and its instructions starting on Page Household income. Household income for purposes of the individual mandate is the taxpayer s (and, if the taxpayer files a joint return, the taxpayer s spouse s) modified adjusted gross income (MAGI), plus the aggregate MAGIs of every individual who the taxpayer properly claims as a dependent and who is required to file a tax return for that tax year. [IRC Sec. 5000A(c)(4)(B); Reg A-1(d)(10)] Modified adjusted gross income (MAGI). For Section 5000A purposes, MAGI means AGI increased by any amount excluded from gross income under IRC Sec. 911 (the foreign earned income exclusion) and any amount of tax-exempt interest received or accrued by the taxpayer during the tax year. [IRC Sec. 5000A(c)(4)(C)] Required contribution for employees eligible for coverage under an employer-sponsored plan. When determining if coverage is considered affordable, the required contribution for an employee eligible for coverage through an eligible employer-sponsored plan is the portion of the annual premium that the employee would pay (whether through salary reduction or otherwise) for the lowest cost self-only MEC in which he can enroll. [IRC Sec. 5000A(e)(1)(B)(i); Reg A-3(e)(3)(ii)(A)] In general, an employee or related individual is treated as eligible for coverage under an eligible employer-sponsored plan for a month during a plan year if the employee or related individual could have enrolled in the plan for any day in that month during an open Edition Health Care Reform Quickfinder Handbook by any individual whose MAGI is included in household income Replacement Page 1/2018

4 or special enrollment period, regardless of whether the employee or related individual is eligible for any other type of MEC. [Reg A-3(e)(3)(i)(A)] An individual who may enroll in COBRA coverage required under federal law or coverage under a state law that provides comparable continuation coverage determines affordability based on that coverage only if the individual enrolls in the coverage [Reg A-3(e)(3)]. An individual who does not enroll in the COBRA or comparable state coverage determines affordability based on having coverage available through the individual market (see Required contribution for an individual who is ineligible for coverage under an eligible employer-sponsored plan in the next column). Example: Erin is an unmarried individual with no dependents. During November 2016, Erin was eligible to enroll in self-only MEC under a plan offered by her employer for calendar year If Erin had enrolled in the coverage, her required contribution, which is her portion of the premium for the lowest-cost self-only MEC in which she could have enrolled, would be $5,000. During 2017, Erin s adjusted household income was $60,000. Erin lacked affordable coverage for 2017 because her required contribution ($5,000) was greater than 8.16% of her adjusted household income ($4,896). For an individual who is eligible for coverage under an eligible employer-sponsored plan because of a relationship to an employee and for whom a personal exemption deduction under IRC Sec. 151 is claimed on the employee s federal income tax return (related individual), the required contribution is the portion of the annual premium that the employee would pay (whether through salary reduction or otherwise) for the lowest-cost family coverage that is MEC and would cover the employee and all related individuals who are included in the employee s family and are not otherwise exempt. [Reg A-3(e)(3)(ii)(B)] Example: Bill and Cindy are married and have two dependent children, Danny and Elaine. The family s 2017 adjusted household income is $90,000. The lowest-cost self-only MEC offered by his employer for calendar year 2017 would cost Bill $5,000. Bill has affordable coverage for 2017, because his required contribution ($5,000) does not exceed 8.16% of his adjusted household income ($7,344). Cindy, Danny and Elaine are eligible to enroll in family coverage under the same plan for 2017 at a cost of $20,000 to Bill. Cindy, Danny and Elaine lack affordable coverage for 2017, because their required contribution ($20,000) exceeds 8.16% of their adjusted household income ($7,344). Two or more family members employed. If two or more family members are employed and their respective employers offer selfonly and family coverage under eligible employer-sponsored plans, each employed individual determines the affordability of coverage using the required contribution for self-only MEC offered by that individual s employer and the required contribution for family coverage under each employer s plan. Each may have affordable coverage [because the required contribution under each plan does not exceed 8.16% in 2017 (8.05% in 2018) of their adjusted household income]; although in aggregate the premiums for the lowest-cost self-only MEC or family coverage exceed the applicable percentage. In such a situation, the family qualifies for an unaffordability exemption. Example: Marina and Gary are married. Each works for a different employer that has an eligible employer-sponsored calendar year health plan. They have two children, Erin and Samantha. The family s adjusted household income for 2017 is $90,000. Generally, the applicable plan is The combined required contribution for coverage for Marina and Gary is $11,000, which is 12% of their adjusted household income. Therefore, Marina and Gary are considered to have unaffordable coverage based on the aggregate cost of the lowest-cost self-only MEC available. The lowest-cost family coverage available is from Marina s employer and her share of premiums is $10,000. Because the required contribution for the lowest-cost family coverage available is also more than 8.16% of their adjusted household income, all four family members are considered to have unaffordable coverage for the year and are not subject to the individual shared responsibility penalty. Part-year coverage. The required contribution for part-year coverage is determined separately for each employment period that is less than a full calendar year or for the portions of an employer s plan year that fall in different tax years of the individual. Coverage under an eligible employer-sponsored plan is considered affordable for a part-year period if the annualized required contribution for self-only coverage (in the case of the employee) or family coverage (in the case of a related individual) under the plan for the part-year period does not exceed the required contribution percentage (8.16% in 2017; 8.05% in 2018) of the individual s household income for the tax year. The annualized required contribution is calculated as follows: Required contribution for the part-year period Marina s required contribution (premium for the lowest-cost, self-only MEC offered through her employer s health plan) is $5,000, which is 5.5% of the family s 2017 household income. Therefore, Marina s insurance is affordable for her. Her employer also offers family coverage that will cover all four family members. The required contribution for the family coverage is $10,000. Gary s required contribution for coverage offered through his employer s health plan is $6,000, which is 6.7% of the family s 2017 household income. Therefore, Gary s insurance is affordable for him. His employer also offers family coverage that will cover all four family members for a required contribution of $12,000. income tax return. Some marketplaces may not offer bronze plans. Individuals in those areas Replacement Page 1/ Edition Health Care Reform Quickfinder Handbook Number of months in the part-year period during the calendar year Note: Only full calendar months are included in the computation. [Reg A-3(e)(3)(ii)(C)] Example: Fran is an unmarried individual with no dependents. During June 2016, Fran is eligible to enroll in self-only MEC under a plan offered by her employer for the period July 2016 through June 2017 with a required contribution of $395 per month. During June 2017, Fran is eligible to enroll in self-only MEC under a plan offered by her employer for the period July 2017 through June 2018 with a required contribution of $460 per month. Fran s household income in 2017 is $60,000. Fran s annualized required contribution for the six-month period January through June 2017 is $4,740 ($2,370 paid for premiums in /6). She has affordable coverage for these months because her annualized required contribution ($4,740) does not exceed 8.16% of her household income ($4,896). Fran s annualized required contribution for the six-month period July through December 2017 is $5,520 ($2,760 paid for premiums in /6). Fran lacks affordable coverage for these months because her annualized required contribution ($5,520) exceeds 8.16% of her household income ($4,896). Required contribution for an individual who is ineligible for coverage under an eligible employer-sponsored plan. For an individual who is ineligible for coverage under an eligible employersponsored plan, the required contribution is the premium for the applicable marketplace plan, reduced by the maximum amount of any allowable premium tax credit for the tax year, determined as if the individual was covered for the entire tax year by a QHP offered through the marketplace serving the rating area where the individual resides [Reg A-3(e)(4)(ii)(C)]. (See Tab 3 for further discussion of the premium tax credit.) The applicable plan means the single lowest-cost bronze plan available in the individual market through the marketplace serving the rating area in which the individual resides that would cover all individuals in the individual s tax household for whom a personal exemption is claimed on the taxpayer s tax return and who are not otherwise exempt nor eligible for coverage under an eligible employer-sponsored plan. [Reg A-3(e)(4)(ii)] An individual s tax household is comprised of the taxpayer, the taxpayer s spouse (if filing jointly) and any individual who is claimed (or could be claimed) as a dependent on the taxpayer s federal use the lowest-cost metal level plan available in their area (for example, a silver plan) that will cover the required family members. (IRS Notice )

5 When an individual dies during the year, he is considered to have coverage for the entire year, if he had MEC for all months in the year before the month of his death. Note: No documentation is required to be filed with the individual s federal income tax return, but the IRS may later request documentation as proof that the individual shared responsibility penalty is not applicable for certain months. Taxpayers should keep copies of applicable documents in case the IRS requests them. If all members of the tax household (including a member born, adopted or who died during the year) have MEC for each full month they are a part of the tax household, then Form 8965 does not need to be filed (unless another coverage exemption applies). However, if an individual who was born or adopted or who died during the year did not have MEC for the applicable period and qualified for an exemption for one or more of those months, Part III of Form 8965 must be completed to show the months for which an exemption is allowed. See a copy of Form 8965 and its instructions starting on Page Nonresidents, Bona Fide Residents of a U.S. Territory and Noncitizens An individual who is not lawfully present in the U.S. is exempt from the health insurance mandate. For example, an immigrant with a deferred action for childhood arrival (DACA) status is not subject to the mandate. An individual who is a bona fide resident of a U.S. possession or territory is also exempt. Additionally, a nonresident alien, including a dual-status alien in the first year of residency, and a nonresident or dual-status alien who files a joint income tax return with a U.S. spouse, is not subject to the individual mandate. U Caution: The exemption does not apply to a nonresident alien who meets certain presence requirements during the calendar year and elects to be treated as a resident alien. These exemptions are reported in Part III of Form See a copy of Form 8965 and its instructions starting on Page U.S. Citizens or Resident Aliens Residing Outside the U.S. Any U.S. citizen or resident alien who resides outside the U.S. and meets either the physical presence test or bona fide residence test for a month is considered to have met the requirement to have MEC for that month. This exemption is reported in Part III of Form Individual Enrolled in Certain Limited Benefit Medicaid Programs Certain Medicaid programs are not considered MEC. However, individuals enrolled in the following limited-benefit Medicaid/CHIP programs in certain states may qualify for an exemption from the individual mandate for the months they are enrolled in the coverage: Medicaid coverage that is only for pregnancy-related services that has not been recognized as MEC by HHS. CHIP coverage provided to an unborn child that includes comprehensive prenatal care for the pregnant mother. Medicaid coverage provided to a medically needy individual that has not been recognized as MEC by HHS. Spend-down Medicaid coverage. The exemption is applied for by submitting a hardship exemption application to the state marketplace. If the marketplace approves the exemption, it is reported in Part I of Form If the Connecticut marketplace granted this coverage exemption for one or more months in 2017, instead of completing Part III, the exemption is reported in Part I of Form new coverage that meets the market reform standards to be too expensive. If allowed by the state, a noncompliant policy can be extended through December 2018, if renewed on or before October 1, For individuals in states in which this noncompliant coverage is cancelled, individuals can apply for a hardship exemption. Documentation must be provided to show that the coverage was cancelled and current insurance offered is not affordable. Individuals who do experience the cancellation of noncompliant coverage are eligible to enroll in a catastrophic plan through the individual marketplace, even if they do not otherwise meet the qualifications. may may Members of Indian Tribes An applicable individual is exempt from the shared responsibility penalty for any month that includes a day on which the individual is a member of an Indian tribe [Reg A-3(g)]. The term Indian tribe means any Indian tribe, band, nation, pueblo or other organized group or community, including any Alaska Native village or regional or village corporation, as defined in, or established pursuant to, the Alaska Native Claims Settlement Act that is recognized as eligible for the special programs and services provided by the U.S. to Indians because of their status as Indians under IRC Sec. 45A(c)(6). This exemption generally can be claimed in Part III of Form 8965 when filing an income tax return. However, individuals residing in Connecticut must obtain this exemption from the state marketplace. Before September 1, 2016, individuals could also be granted this exemption by the federal marketplace. Individuals who received this exemption from a marketplace and have an exemption certificate continue to report the exemption in Part I of Form 8965 for as long as the exemption is valid. See a copy of Form 8965 and its instructions starting on Page Individuals eligible for Indian health care services. Generally, an individual who is not otherwise eligible for an exemption as a member of an Indian tribe, but who is eligible for services through Indian Health Services, a tribal health facility or an urban Indian organization qualifies for an exemption [HHS Reg. 45 CFR (e)(3)]. The exemption generally can be reported in Part III of Form However, individuals residing in Connecticut must obtain this exemption from the state marketplace. Before September 1, 2016, individuals could also be granted this exemption by the federal marketplace. Individuals who received this exemption from a marketplace and have an exemption certificate continue to report the exemption in Part I of Form 8965 for as long as the exemption is valid. See a copy of Form 8965 and its instructions starting on Page Individuals With Certain Short Coverage Gaps An individual who has a short coverage gap is exempt from the shared responsibility penalty during that time period. Short coverage gap. A short coverage gap is a continuous period of less than three months that the individual does not have MEC. If the individual does not have MEC for a continuous period of three or more months, none of the months included in the continuous period is treated as included in a short coverage gap. [Reg A-3(j)(2)(i)] For purposes of qualifying for a short coverage gap exemption, an individual is treated as having MEC for any month in which Individual Unable to Renew Coverage in he has coverage for at least one day during the month or for a Place as of January 1, 2014 month in which he is exempt under another exemption category. Many individuals who had coverage before 2014 that does not This exemption is claimed in Part III of Form 8965 when filing the conform to the Affordable Care Act s market reform standards individual s federal income tax return. See a copy of Form 8965 (see Tab 9) wanted to continue that coverage because they found and its instructions starting on Page Edition Health Care If Reform the exemption Quickfinder was Handbook granted by the Connecticut marketplace for one or more Replacement Page 1/2018 months in 2017, the exemption is reported in Part I of Form 8965, instead of Part III.

6 Example: Dave has MEC in 2017 from January 1 through March 2. After March 2, Dave does not have MEC until he enrolls in an eligible employersponsored plan effective June 15. Therefore, Dave has MEC for January, February, March and June through December. Dave s continuous period without coverage is two months, April and May. April and May constitute a short coverage gap. More than one short gap. If an individual has more than one short coverage gap during a calendar year, the exemption only applies to the earliest short coverage gap. [IRC Sec. 5000A(e)(4)(B); Reg A-3(j)(2)] Continuous period bridging calendar years. In general, the number of months included in a continuous period is determined without regard to the calendar years in which months included in that period occur. [IRC Sec. 5000A(e)(4)(B)(i); Reg A-3(j)(3)(i)] If an individual does not have MEC for a continuous period that begins in one tax year and ends in the next, for purposes of applying the exemption to the first tax year, the months in the second tax year included in the continuous period are disregarded. For purposes of applying the exemption to the second tax year, the months in the first tax year that are part of the continuous period are taken into account. Example: Freddy has MEC for the period of January 1 through October 15, Freddy is without coverage until enrolling in an eligible employersponsored plan effective February 15, November and December are treated as a short coverage gap for calendar year Therefore, Freddy has MEC or qualifies for an exemption for every month in January 2018 is not considered when applying the short coverage gap rule for For calendar year 2018, the months of November and December 2017 are taken into account when determining if the short coverage gap exemption applies. Therefore, because Freddy did not have coverage for three full months (November 2017 January 2018), he does not qualify for the short coverage gap exemption for January Unless he qualifies for another exemption for that month, he will owe a shared responsibility penalty. However, if later in the year, Freddy loses coverage, he may qualify for a short coverage gap exemption for those months, because January does not count as a short coverage gap month. Therefore, if Freddy lost coverage for June July 2018, he would qualify for the exemption for those months. Hardship Exemption An individual who, for any month, is determined by HHS to have suffered a hardship in obtaining MEC under a QHP is exempt [IRC Sec. 5000A(e)(5); Reg A-3(h)(1)]. Exemption certificates are issued by the state insurance marketplace [Reg A-3(h)(2)]. The application to apply for a hardship exemption is available at Hardship exemptions are reported in Part I of Form 8965 filed with the individual s income tax return. The exemption certificate number (ECN) is entered on Form See a copy of Form 8965 and its instructions starting on Page A hardship exemption may be issued for a specific month, a period of months or an entire calendar year. Additionally, it can be issued for periods that are in more than one calendar year (for example, from July June). The state marketplace must grant a hardship exemption for at least the month before, a month or months during which, and the month after, it determines that an individual cannot obtain coverage under a QHP due to any of the following: [HHS Reg. 45 CFR (d)(1)] 2) The expense of purchasing a QHP would cause serious deprivation of food, shelter, clothing or other necessities. 3) The individual has experienced other circumstances similar to items 1 or 2 that prevent him from obtaining coverage under a QHP. Federally facilitated and federal partnership marketplaces may consider the following circumstances as keeping an individual from obtaining coverage under a QHP [see the Consumer Information and Insurance Oversight (CCIIO) Memo dated June 26, 2013]: Becoming homeless. Being evicted or facing eviction or foreclosure. Receiving a shut-off notice from a utility company. Recently experiencing domestic violence. Experiencing the death of a close family member within the last three years. Experiencing a fire, flood or other natural or human-caused disaster that results in substantial damage to the individual s property. Filing for bankruptcy. Incurring unreimbursed medical expenses that resulted in substantial debt. Experiencing unexpected increases in essential expenses due to caring for an ill, disabled or aging family member. Claiming a child as a tax dependent when that child has been denied coverage in Medicaid or CHIP, and another person is required by court order to provide medical support to the child. As a result of a marketplace appeals decision, being determined eligible for (1) enrollment in a QHP, (2) lower costs on monthly premiums or (3) cost-sharing reductions for a period of time during which the individual was not enrolled in a QHP through a state marketplace. What Is the Required Health Insurance Coverage? Generally, individuals are required to maintain MEC for each month for themselves and their dependents. [IRC Sec. 5000A; Reg A-1(b)] Minimum essential coverage (MEC) is health insurance coverage under: [IRC Sec. 5000A(f); Reg A-2(a); HHS Reg. 42 CFR ] 1) A government-sponsored program, 2) An eligible employer-sponsored plan, 3) A plan in the individual market, 4) A grandfathered health plan or 5) Other health benefits coverage specified by HHS. MEC does not include coverage under plans that offer only excepted benefits or other limited-scope benefits offered under a separate policy [Reg A-2(g)]. See Coverage That Does Not Qualify as MEC on Page 1-9. See the Minimum Essential Coverage (MEC) Chart on Page 1-8 for a list of coverage that is considered MEC. Government-Sponsored Programs Government-sponsored programs include the following: [Reg A-2(b)] The Medicare program under part A of Title XVIII of the Social Security Act. The Medicaid program under Title XIX of the Social Security Act. Limited Medicaid coverage or optional coverage (for example, tuberculosis-related services) is generally not included. 1) The individual experiences financial or domestic circumstances, including an unexpected natural or human-caused The Children s Health Insurance Program (CHIP) under Title event, such that he has a significant, unexpected increase in XXI of the Social Security Act. CHIP buy-in coverage offered to essential expenses. individuals or families with income exceeding the eligibility level Note: The event causing the hardship must have occurred in the current Continued on the next page Replacement Page 1/2018 calendar year or in one of the two prior calendar years. State-based marketplaces 2018 Edition Health Care Reform Quickfinder Handbook 1-7 have the flexibility to develop their own criteria.

7 Bronze Plan Premium The monthly national average bronze plan premium is an amount announced by the IRS each year. The amount is based on the premiums for bronze level plans offered through state marketplaces for the tax year. To simplify calculations and help ensure individuals are generally not liable for a penalty that would materially exceed the family s actual cost of coverage, the amount is based on premiums that would be charged to a 21-year-old who does not use tobacco. (Rev. Proc ) The monthly national average bronze plan premium for 2017 is $272 per individual (Rev. Proc ). For taxpayers who have a shared responsibility family consisting of five or more individuals, the monthly maximum amount is $1,360 for Therefore, the maximum tax penalty for individuals not carrying insurance in 2017 is $3,264 per individual ($272 12) and $16,320 for a family with five or more members ($1,360 12). Tax household. A taxpayer s tax household consists of the taxpayer, the taxpayer s spouse (if married and filing jointly) and any individual who is claimed (or could be claimed) as a dependent on the taxpayer s federal income tax return. The taxpayer must be sure that everyone in his tax household has MEC or qualifies for an exemption for each month of the year. Shared responsibility family. The shared responsibility family is made up of the members of the tax household who are not exempt from the individual mandate and do not have MEC for one or more months during the year. These are the family members for whom the taxpayer is subject to a shared responsibility penalty. Calculating the Individual Shared Responsibility Penalty When all family members do not have health insurance coverage for the exact same months during the year, the shared responsibility penalty calculation is relatively straightforward. The Calculating the Individual Shared Responsibility Penalty Worksheet (2017) on Page 1-13 can be used. Example: Patrick and Emma Conner, both age 45, are a married couple with three dependent children, Tom, Hank and Betty (ages 10, 12 and 15, respectively). None of the Conner s have MEC for the eight-month period of January August 2017, and they do not qualify for any exemptions from the shared responsibility penalty. The Conners file a joint return and their 2017 household income is $200,000. Their filing threshold for 2017 is $20,800. Consequently, their excess income amount for 2017 is $179,200 ($200,000 $20,800). The completed Sample Calculating the Individual Shared Responsibility Penalty Worksheet (2017) on Page 1-12 shows the calculations for the $2,987 shared responsibility penalty for 2017 for the Conner family. When members of a family are without coverage for different months during the year, the calculations are more involved. The Shared Responsibility Payment Worksheet along with Worksheets A and B, which are in the Form 8965 instructions (reproduced beginning on Page 1-30) must be used to calculate the penalty. The calculations are made while answering a series of questions and are divided into steps. Step 1 is a series of yes or no questions, first to determine whether or not a shared responsibility payment is owed and then to determine whether to calculate the flat dollar amounely. t in Step 2 or in Worksheet A. The amount calculated in Step 2 or Worksheet A is entered on Line 1 of the Shared Responsibility Payment Worksheet. Replacement Page 1/2018 Step 3 calculates household income. Step 4 is where the percentage income amount is calculated using the amount calculated in Step 3. Worksheet B is completed as part of step 4 if Worksheet A was previously completed. The amount calculated in Step 4 is entered on line 2 of the Shared Responsibility Payment Worksheet. The applicable national average bronze plan premium amount is calculated in Step 5. This amount is entered on line 4 of the Shared Responsibility Payment Worksheet. After Steps 1 5 are completed, the amounts entered in the Shared Responsibility Payment Worksheet are compared to determine the shared responsibility payment amount, which is entered on line 5 of the worksheet. Reporting and Paying the Penalty After the penalty is calculated using the Calculating the Individual Shared Responsibility Worksheet (2017) on Page 1-13 or the worksheets in the Form 8965 instructions starting on Page 1-16), the penalty amount is reported on Form 1040, as part of the individual s tax liability. Any payment due is reported on line 61 of Form 1040 (line 38 of Form 1040A, or line 11 of Form 1040-EZ). Consequences of Not Paying the Penalty The individual shared responsibility penalty is actually a miscellaneous excise tax imposed under Chapter 48 of the Code. However, it is generally assessed and collected in the same manner as the Chapter 68 assessable penalties in IRC Secs and is due upon notice and demand by the IRS. [IRC Sec. 5000A(g)(1); Reg A-5(a)] Generally, if the penalty is not paid, or the IRS adjusts the penalty amount, the taxpayer will receive a notice. The IRS will send up to three notices asking for payment. If not paid after the third notice, the amount due is put into no collection action status until paid. The IRS can collect the penalty by offsetting a tax refund due to the individual. The IRS is not allowed to levy on any property to enforce the tax penalty and its use of tax liens for enforcement of the penalty is limited [IRC Sec. 5000A(g)(2)(B); Reg A-5(b)(2)]. Therefore, offsetting refunds and credits may be the only practical way for the IRS to collect the penalty. An individual who fails to pay the penalty is not subject to any criminal prosecution or penalty for such failure. [IRC Sec. 5000A(g)(2)(A); Reg A-5(b)(1)] The penalty is not imposed by Chapter 1, 2 or 2A of the Code. Therefore, it is not subject to an underpayment penalty under IRC Sec. 6654(a) if not paid through estimated tax payments. However, any portion of the penalty that is not paid when the taxpayer s federal income tax return is filed is subject to interest under IRC Sec. 6601(a). Recordkeeping Requirements Individuals should maintain records documenting whether or not they have MEC that satisfies the individual mandate. If granted an exemption by a state insurance marketplace, a copy of the exemption certificate and all documentation supporting the exemption should be kept with an exempt individual s tax records for the calendar year. Individuals claiming an exemption from the penalty when filing their federal income tax return should maintain adequate documentation with their other income tax records to show how they qualified for the exemption and the months for which the exemption applied. U Caution: The IRS has announced that 2017 electronically filed individual income tax returns will not be accepted unless the health care coverage requirements are addressed. Returns filed on paper that do not address 2018 Edition the requirements Health Care Reform Quickfinder Handbook 1-11 will be held in suspense status until additional information is provided to the IRS.

8 Example: Heidi, her spouse, Joe, and their dependent enroll in a QHP. Heidi s and Joe s applicable benchmark plan is the SLCSP covering Heidi, Joe and their dependent. One or more Silver level plans for family coverage offered through a marketplace may not cover all members of a taxpayer s coverage family under one policy (for example, because of the relationships within the family). If this is the case, the premium for the applicable benchmark plan may be the total premiums for the policies that would separately cover all of the family members. [Reg. 1.36B-3(f)(5)] The premium for the applicable benchmark plan for family members who live in different states and enroll in separate QHPs is the sum of the premiums for the applicable benchmark plans for each group of family members living in the same state. The SLCSP may change during the year if there are changes in the taxpayer s family (such as the birth, adoption or death of a family member). Example: Abby is single and has no dependents when she enrolls in a QHP for On August 1, 2017, Abby has a child, Robert, whom she claims as a dependent for the tax year. Abby enrolls in a QHP covering herself and Robert effective August 1. Abby s applicable benchmark plan for January through July is the SLCSP providing self-only coverage for Abby. Her applicable benchmark plan for the months August through December is the SLCSP covering both Abby and Robert. Applicable percentage. To To determine the the amount amount of of the the PTC, PTC, the the taxpayer must must compare the the enrollment premiums paid paid for for coverage coverage to to a a calculated amount. (the The contribution calculated amount). is The the contribution excess (if any) amount of the adjusted is based monthly the adjusted premiums monthly for the premiums applicable for SLCSP the applicable the taxpayer s SLCSP and contribution the taxpayer s amount. household The contribution income for amount the credit is the over year amount relative of premiums to the applicable a taxpayer year would FPL be for required the taxpayer s to if family he had size enrolled [Reg. in 1.36B-3(g)(1)]. the applicable This SLCSP is the and applicable is determined percentage, by multiplying which is the referred taxpayer s to on Form household 8962 income as the applicable by the applicable figure. It percentage represents for the the maximum tax year. The share applicable of income percentage an individual for the is required tax year is to computed pay for health by first insurance determining coverage the percentage under a QHP that the purchased taxpayer s through household a state income insurance bears marketplace. to the applicable The year applicable FPL for percentage the taxpayer s is found family by size using and the then Applicable using that Figure percentage Table provided to locate the in the applicable Form 8962 figure instructions the Applicable on Page Figure Table which is provided in the Form 8962 instructions on Page Plan Covering More Than One Family A QHP may cover more than one tax family under the same policy. When this occurs, each tax family may be entitled to a PTC, if otherwise qualified. Each tax family computes the credit using the appropriate applicable percentage, household income and SLCSP premium that applies for that tax family. The enrollment premiums paid for the coverage must be allocated to each tax family based on the ratio of the total SLCSP premiums for each tax family. [Reg. 1.36B-3(h)(1)] Example: Sue enrolls herself, her two dependent daughters and her adult son, Ken, in a QHP through the state marketplace. Ken cannot be claimed as a dependent on Sue s tax return. The enrollment premium for the plan is $15,000. The enrollment premium for the SLCSP covering only Sue and her dependents is $12,000 and the premium for the SLCSP providing self-only coverage to Ken is $6,000. Sue and Ken are applicable taxpayers and otherwise eligible to claim the PTC. Sue computes her PTC using her household income, a family size of three and a benchmark plan premium of $12,000. Ken computes his credit using his household income, a family size of one and a benchmark plan premium of $6,000. The $15,000 enrollment premium for the QHP must be allocated between Sue and Ken, using the ratio of the total SLCSP premiums for the two tax families. Therefore, the portion of the premium allocated to Sue is $10,000 ($15,000 $12,000 $18,000) and the portion allocated to Ken is $5,000 ($15,000 $6,000 $18,000). Replacement Page 1/2018 Enrollment Premiums The enrollment premiums for the coverage an individual is enrolled in are used in the calculation to determine the PTC. The enrollment premium for a plan, which is reported on Form 1095-A (Health Insurance Marketplace Statement), is the cost of coverage for essential benefits covered by the plan. The enrollment premiums include the cost of pediatric dental coverage, which may be offered under a separate dental plan. Generally, the marketplace will include these separate premiums in the amount reported on Form 1095-A as the enrollment premiums. If a QHP offers benefits in addition to essential health benefits, the portion of the premium properly allocable to the additional benefits is not taken into account for PTC purposes [IRC Sec. 36B(b)(3)(D); Reg. 1.36B-3(j)]. Therefore, the enrollment premium amount reported on Form 1095-A and used in the PTC calculation may not be the actual premium amount paid for the individual s coverage. HHS determines the enrollment premium amount for each QHP. Families Including Individuals Not Lawfully Present If one or more individuals for whom a taxpayer is allowed a dependency exemption deduction under IRC Sec. 151 are not lawfully present in the U.S., a taxpayer s household income used for PTC purposes must be adjusted. Therefore, the percentage a taxpayer s household income bears to the applicable year FPL for the taxpayer s family size for purposes of determining the applicable percentage is determined by excluding from family size individuals who are not lawfully present. [Reg. 1.36B-3(l)(1)] Taxpayers in this situation must follow the instructions in IRS Pub. 974 [Premium Tax Credit (PTC)], and use the worksheets in the publication to determine their household income for PTC purposes. Advance Premium Tax Credit (APTC) Payments An individual eligible for a PTC can elect to have the credit amount paid directly to the insurer to help pay monthly health insurance premiums during the calendar year [Reg. 1.36B-1(j)]. These payments are called APTC. Eligibility for APTC. The marketplace determines if a tax filer is eligible for APTC based on information furnished on the individual s application for coverage and other information available at that time. Receiving APTC is an advantage over paying the full amount of the premiums and waiting to receive the credit when filing an income tax return. Taxpayers who received APTC for a year and did not file an income tax return with Form 8962 completed to reconcile the APTC with the actual PTC amount allowed for that tax year may not continue to be eligible for APTC for future calendar years [HHS Reg. 45 CFR (f)(4)]. As part of the process for determining if an individual is eligible for APTC, the HHS receives information from the IRS regarding whether prior year APTC was reconciled. [Reg (l)(21)-1(a)(7)] Reconciling the PTC Allowed With APTC A taxpayer must reconcile the PTC allowed for the year with the APTC he received during the year [IRC Sec. 36B(f)(1); Reg. 1.36B-4(a)]. Therefore, any individual who receives APTC with regard to his enrollment, a dependent s enrollment or a spouse s enrollment (if a joint return is filed), must file a federal income tax return and complete Form 8962 [Premium Tax Credit (PTC)]. A taxpayer whose allowable PTC for the tax year exceeds APTC received during the year may receive the excess as an income tax refund. A taxpayer whose APTC for the tax year exceeds the taxpayer s allowable PTC owes the excess as an additional 2018 Edition Health Care Reform Quickfinder Handbook 3-5

9 may be eligible for a PTC because QSEHRAs are not considered MEC. However, the QSEHRA benefits may affect the amount of PTC. Guidance on how QSEHRAs coordinate with the PTC is in IRS Notice Individuals with QSEHRA benefits Note: A taxpayer cannot complete Part II of Form Form 1095-A are combined and entered in column (a), line 11 of 8962 without having all Forms 1095-A (Health Insurance Marketplace Statement) for the taxpayer and are the total enrollment premiums for the calendar year. It includes Form The amounts on line 33, column A, of Form 1095-A any other individual for whom a personal exemption amounts paid by the taxpayer and amounts paid by APTC. is claimed on the taxpayer s tax return (that is, the In column (b) of line 11, the applicable SLCSP based on the taxpayer s coverage, family size and place of residence is entered. taxpayer s tax family). Form 1095-A is furnished by the state marketplace and provides information Generally, this is the amount reported on Form 1095-A, line 33, necessary to calculate the PTC and reconcile the column B. However, if more than one Form 1095-A is received, allowed credit to any APTC received. If a taxpayer (or any tax or amounts reported on Form 1095-A must be allocated, then the family members) enrolled in coverage for 2017 in a QHP through reported SLCSP premium may not be correct. Additionally, the marketplace may not report an amount in column B in some situations. For individuals enrolled in a federally facilitated marketplace, a marketplace and a Form 1095-A was not received, the marketplace should be contacted. a look-up tool is available at that Most taxpayers can use the information reported on all Forms can be used to determine the correct SLCSP premium to enter on 1095-A that are received for the taxpayer s family members to Form Individuals in states with a state-based marketplace complete Part II of Form However, that information may should contact the state marketplace for information on determining the correct SLCSP premium to enter. For individuals who are need to be allocated if it includes information for an individual who is not part of the taxpayer s tax family. Alternately, the taxpayer part of the tax family and enrolled in QHPs in different states, the may need to obtain information reported on a Form 1095-A sent amounts from line 33, column B, of the Forms 1095-A are combined to another individual, because information regarding a member and the total entered in column (b), line 11 of Form of the taxpayer s tax family is reported on it. Individuals who married during the year may elect an alternative calculation that is Form 8962 is entered in column (c) of line 11. The amount in The annual contribution amount from line 8a in Part I of the 2017 performed before Part II can be completed. column (c) is subtracted from the amount in column (b) and the Allocating policy amounts. To determine if shared policy allocations or alternate calculations are needed before Part II is com- is the maximum amount of annual PTC allowed. A zero is entered result is entered in column (d). The amount entered in column (d) pleted, the taxpayer must answer the question on line 9 of the 2017 in column (d) if column (b) minus column (c) results in a negative Form Generally, amounts reported on a Form 1095-A must number. The allowed annual PTC that is entered in column (e) is the smaller of column (a) or column (d). be allocated if they include amounts for at least one individual in the tax family and at least one individual who was part of another U Caution: Taxpayers who were provided a QSEHRA by their tax family. Therefore, if a taxpayer receives a Form 1095-A that employers must follow specific instructions in IRS Pub. 974 to has information on an individual who is not part of his tax family, determine the amount to enter in column (e). the amounts must be allocated. Additionally, if an amount for a In column (f) of line 11, the amount of APTC (as reported on Form member of the taxpayer s tax family is included on a Form 1095-A 1095-A, line 33, column C) is entered. If a taxpayer has more than sent to another taxpayer, allocations are needed. one Form 1095-A, the amounts on line 33, column C, of each form are added together and the total is entered in column (f). Annual or monthly calculation. The PTC is calculated using either an annual calculation or a monthly calculation. The annual Monthly calculation. Taxpayers not eligible to use the annual calculation is simpler if the taxpayer is eligible. To determine which calculation on line 11 of Form 8962 must use the monthly calculation on lines of Form Taxpayers required to complete method to use, the taxpayer must answer the question on line 10. either Part IV or Part V of the 2017 Form 8962 use the applicable A taxpayer checks Yes on line 10 and is eligible to use the annual calculation on line 11 if all of the following conditions are met reported on Forms 1095-A for policies not allocated to determine allocated amounts from either Part IV or Part V plus amounts for each QHP the taxpayer or a member of his tax family were the amounts to enter in each column. enrolled in: In column (a) of lines 12 23, the amount reported on the corresponding month line of Form 1095-A (lines 21 32) in column A is 1) The individuals were enrolled in the QHP for all 12 months of the year. entered, rounded to the nearest dollar. For taxpayers who have 2) The monthly enrollment premium reported more than one Form 1095-A, the applicable amounts on each Form on lines 21 32, column A, of Form 1095-A 1095-A are combined and the total is entered. The amount entered is the same amount for all 12 months. in column (a) for each month is the total enrollment premiums paid 3) The SLCSP premium reported on lines 21 32, column B, of for each month, and includes the amounts paid by the taxpayer and the amounts paid by APTC. Form 1095-A is the same amount for all 12 months. If the SLCSP premium reported on Form 1095-A is not accurate, In column (b) of Part II, the amount of the monthly premium for then the correct SLCSP determined by the taxpayer or practitioner must the be same for all 12 months. the applicable SLCSP for the coverage family is entered. Generally, this is the amount reported on the corresponding month line of Form 1095-A (that is, lines in column B). If the taxpayer A taxpayer who does not meet all of these requirements must check has more than one Form 1095-A affecting a particular month, the the No box on line 10 and complete the monthly calculations on following amounts should be entered: lines of Form Line 11 is left blank. 1) For individuals enrolled in separate QHPs in the same state, Annual calculation. Taxpayers eligible to use the annual calculation complete line 11 of the 2017 Form If completing line 11, or the look-up tool is used to determine the correct SLCSP the amount from column B of only one Form 1095-A is entered the monthly calculation on lines is not completed. premium amount to enter. Note: Taxpayers required to complete either Part IV or Part V 2) For individuals enrolled in QHPs in different states, the of Form 8962 use the applicable allocated amounts from either Part amounts in column B on the corresponding month line of IV or Part V plus amounts reported on Forms 1095-A for policies Form 1095-A are combined and the total is entered on the not allocated to determine the amounts to enter in each column. applicable month line. In column (a) of line 11, annual premiums reported on Form ) Individuals who married during the year and were enrolled in A, line 33, column A, are entered. If a taxpayer has more than one separate QHPs during the months before the first full month Form 1095-A, the separate amounts on line 33, column A, on each Continued on the next page Replacement Page 1/ Edition Health Care Reform Quickfinder Handbook 3-7

10 However, the insurers are still required under current law to limit cost-sharing for certain qualifying individuals. Limitation on repayments of excess APTC. Generally, the SEHID is based on the actual cash premiums paid for health insurance and other qualifying insurance (for example, longterm care) during a calendar year. When a self-employed individual enrolls in a QHP and receives APTC, the APTC is not considered paid by the self-employed individual for SEHID purposes and, therefore, is not included in the calculations. However, any APTC that has to be repaid once the actual PTC amount for the year is calculated is included as premiums paid. Thus, before a self-employed individual can calculate the SEHID and PTC, he must determine the limitation on the additional tax that may be due if APTC has to be repaid. The maximum amount of the APTC that must be repaid is based on the taxpayer s household income as a percentage of the applicable year FPL. See the Part III Repayment of Excess APTC on Page 3-8. If the taxpayer s calculated household income is 400% or more than the applicable year FPL, no limitation on repayment of excess APTC is allowed. A worksheet in IRS Pub. 974 is used for the limitation calculation. Example: For calendar year 2017, Don and Donna and their two dependent children enroll in a QHP through the marketplace with annual premiums of $10,500. The family received an APTC of $4,500 and had no other insurance premiums for which a SEHID applies. Therefore, for purposes of this calculation, their specified premiums are $6,000 ($10,500 $4,500). Donna is self-employed for all of 2017 and has earnings from her business of $75,000. The family s total household income for the year, without the SEHID, is $78,000. Before calculating the SEHID and PTC, the couple must determine the limitation on repayment of excess APTC. The 2016 applicable FPL for a family size of four is $24,300. Don and Donna determine they meet the requirements for the $1,500 repayment limitation for taxpayers with household income of at least 200% and less than 300% of the FPL. Their household income in applying that limitation is $70,500 [$78,000 ($6,000 specified premiums + 1,500 limitation)]. This amount is 290% of the FPL. Therefore, the $1,500 repayment limitation applies. Don and Donna can now calculate the amount of their SEHID and PTC, using $70,500 as their beginning household income amount. Reduced Cost-Sharing for Low-Income Taxpayers Generally, health insurance does not pay 100% of health care costs. The amount of the health care costs other than insurance premiums paid by a covered individual is the cost-sharing portion. These out-of-pocket costs include deductibles, coinsurance and copayments. Employees with health flexible spending accounts (health FSAs) could elect to pay up to a maximum of $2,600 of these costs with pre-tax dollars in Taxpayers are also eligible for an itemized deduction for amounts paid with after-tax dollars for both premiums and unreimbursed medical costs in excess of 10% of their AGI. 7.5% Cost-Sharing A cost-sharing subsidy that reduces required out-of-pocket costs for certain individuals and families whose household income exceeds 100%, but does not exceed 250%, of the applicable year FPL for the family size involved is available. Note: In October 2017, the Trump administration announced that they would no longer reimburse insurers for cost-sharing subsidies. Action is required by Congress to resume the payment of the subsidy reimbursements. When this Handbook was published, Congress had not taken any action to resume the payment of cost-sharing subsidies. Practitioners should be alert for additional developments regarding the subsidies. Cost-sharing defined. Cost-sharing is any expenditure required by or on behalf of an insured individual with respect to essential health benefits. The term includes deductibles, coinsurance, copayments, or similar charges, but excludes premiums, balance billing amounts for non-network providers, and spending for noncovered services. Also, if a plan uses a network of providers, costsharing paid by or on behalf of an insured individual for benefits provided outside of the network is excluded, but insurers can elect to include these costs. Eligible Insured Individuals An eligible insured individual is a person who enrolls in a Silver-level QHP offered through the individual market of a state marketplace, and is expected to have household income that is at least 100% but does not exceed 250% of the applicable year FPL, and meets the APTC requirements, discussed under Premium Tax Credit (PTC) on Page 3-1. Coordination with eligibility for Medicaid. Generally, individuals eligible for Medicaid are not eligible for a cost-sharing-reduction subsidy. Household income, family size, MAGI, coverage month, MEC exception, affordable coverage and coverage providing minimum value. For cost-sharing assistance, these terms are all defined in IRC Sec. 36B, so they are the same as for the PTC, discussed under Premium Tax Credit (PTC) on Page 3-1. Determining the Amount of Cost-Sharing Reduction A health plan cannot require a participant s annual cost-sharing payments (that is, out-of-pocket costs) for essential health benefits to be more than a certain dollar amount. The amounts for 2017 are $7,150 for self-only coverage and $14,300 for family coverage ($7,350 and $14,700 for 2018). Limits for eligible insured individuals. Each year, HHS provides the reduced maximum annual limitations for purposes of the costsharing-reduction subsidy. The 2017 and 2018 limitations are in the Reduced Maximum Annual Limitation on Cost-Sharing: Silver Plan Level table below. Household Income Level Reduced Maximum Annual Limitation on Cost-Sharing: Silver Plan Level Self-Only Coverage Other Than Self-Only Coverage % 150% of FPL $ 2,350 $ 2,450 $ 4,700 $ 4,900 Over 150% 200% of FPL $ 2,350 $ 2,450 $ 4,700 $ 4,900 Over 200% 250% of FPL $ 5,700 $ 5,850 $11,400 $11,700 Actuarial value (AV) percentage. The AV percentage represents the total allowed costs of benefits paid by a health plan based on the essential health benefits provided by the plan. The AV percentage is intended to allow consumers to compare plans and understand a plan s value relative to other plans offered through a state insurance marketplace. Bronze plans are required to have Edition Health Care Reform Quickfinder Handbook Replacement Page 1/2018

11 Small Employers Overview... Page 6-1 Small Business Health Options Program (SHOP)... Page 6-1 Employers That Qualify for the SHOP... Page 6-1 SHOP Coverage Requirements... Page 6-2 SHOP Participation Requirements... Page 6-3 How Do Employers Enroll in SHOP... Page 6-3 How Employees Enroll in SHOP... Page 6-3 How to Appeal a Shop Decision... Page 6-4 Plans Offered in the SHOP... Page 6-4 Small Employer Health Insurance Credit... Page 6-4 Steps to Determine Eligibility for the Credit... Page 6-5 Step 1: Meeting the Uniformity Requirement... Page 6-5 Step 2: Determining Employees Taken Into Account... Page 6-7 Tab 6 Topics Step 3: Calculating Number of Hours of Service... Page 6-7 Step 4: Calculating the Number of FTEs... Page 6-8 Step 5: Calculating Average Annual Wages... Page 6-8 Step 6: Determining Premiums Paid By the Employer... Page 6-9 Multi-Employer Health Plans... Page 6-9 Calculating the Credit... Page 6-9 State Credits and Subsidies... Page 6-10 Claiming the Credit... Page 6-10 Comprehensive Example Small Employer Health Insurance Credit... Page 6-10 Form 8941 (Credit for Small Employer Health Insurance Premiums)... Page 6-14 Small Employer Health Insurance Credit Worksheet... Page 6-15 Replacement Page 1/2018 Overview This tab covers the health care options offered by the Small Business Health Option Program (SHOP). The small employer health insurance credit and its various components are also covered. Small Business Health Options Program (SHOP) In addition to individual insurance marketplaces, each state has a SHOP that assists small employers in providing health insurance coverage to their employees. The SHOP provides small employers a choice of qualified health plans (QHPs) to offer their employees. Note: Small employers that do not fall under the employer health insurance mandate are not required to offer insurance to their employees. See Tab 4 for information on the employer mandate. U Caution: The small employer health insurance credit is available only for plans purchased through a SHOP. See Small Employer Health Insurance Credit on Page 6-4 for more information along with a related transition rule. Similar to the individual insurance marketplace, a SHOP is established for each state. An employer must have an office or work site within the SHOP s service area to use that particular SHOP. The online application process at guides the employer to the correct SHOP. Applying Compare for Plans SHOP and Coverage Apply Online Employers in all states can locate the website of their state SHOP by visiting and selecting the applicable state from the drop-down menu. The online application can be completed by the business owner or with For the plan aid years of an agent, beginning broker on or or other after assister, January such 1, 2018, as a navigator qualified (see Tab employers 2). The price, can enroll coverage in SHOP and coverage quality of directly plans can be easily compared. an insurance company offering SHOP plans or through with the assistance of a registered agent or broker. æ Practice Tip: The premiums paid will not change if the employer uses an agent or broker. Those already using agents can continue to do so if the agent is licensed with the SHOP. Employer tools. The SHOP website ( small-businesses/employers/) has several helpful tools, including See Plans & Prices, an FTE Calculator and a Tax Credit Tool. Note: SHOPs in some states allow an employer to choose a specific plan or a level of coverage (that is, bronze, silver, gold or platinum), instead of just one plan. Applying for SHOP Coverage Generally, an employer must complete an online application to register with the SHOP website and provide certain information before the insurance selection process begins. U Caution: Employers seeking SHOP coverage for the first time can use an insurance broker or agent. Registered brokers and agents can also provide assistance in renewing coverage. See enroll-in-shop/ for more information. Questions Employers with questions about the SHOP marketplace may call Hours: Monday through Friday, 9 a.m. to 7 p.m. ET. Employers That Qualify for the SHOP In order to qualify for SHOP participation, an employer must have at least one common law employee on its payroll, not including the business owner or owner s spouse. Self-employed individuals seeking coverage without common law employees should apply for coverage available through the individual insurance marketplace. (See Tab 2.) Generally, SHOP participation is open to small employers with 50 or fewer full-time equivalent (FTE) employees in the prior year. However, states are allowed to define small employer as an employer with no more than 100 employees in the prior year. A chart available at programs-and-initiatives/health-insurance-market-reforms/ state-rating.html shows the states that have expanded the definition of small employer to no more than 100 employees Edition Health Care Reform Quickfinder Handbook 6-1

12 The IRS is providing penalty relief for filers of 2017 Forms 1095-C that make a good faith effort to comply with the reporting requirements. (IRS Notice ) cases a Section 4980H(b) penalty, even if a full-time employee is not offered adequate health insurance coverage during the period. The limited non-assessment periods are: 1) January through March of the first calendar year in which an employer is an ALE, but only for an employee who was not offered MEC by the employer at any point during the prior calendar year; 2) The waiting period under the monthly measurement method; 3) The waiting period under the look-back measurement method; 4) The initial measurement period and associated administrative period under the look-back measurement method; 5) The period following a change in status that occurs during a initial measurement period under the look-back measurement method and 6) The employee s first calendar month of employment if the employee s first day of employment is a day other than the first day of the calendar month. The periods described in items 1 5 are limited non-assessment periods for purposes of the penalty under IRC Sec. 4980H(a) only if the employee is offered MEC by the first day of the first month following the end of the period. They are limited non-assessment periods under IRC Sec. 4980H(b) only if the health coverage that is offered to the employee by the first day of the first month following the end of the period is minimum value insurance. For more information on measurement periods, see Determining Which Employees Must Be Offered Coverage on Page 4-4. Time and Manner for Filing Returns Generally, Forms 1095-C and 1094-C must be filed with the IRS on or before February 28 (March 31, if filed electronically) of the year immediately following the calendar year to which the return relates. A 30-day extension to file the returns with the IRS can be obtained by filing Form 8809 (Request for Extension of Time to File Information Returns) on or before the due date. Forms 1095-C and transmittal Form 1094-C are required to be filed electronically with the IRS unless the ALE files fewer than 250 Forms 1095-C for the calendar year. ALEs that are not required to file electronically may choose to do so. The IRS encourages electronic filing by all filers. Furnishing Forms 1095-C to Employees Generally, ALEs must furnish a copy of Form 1095-C to each Section 4980H full-time employee on or before January 31 of the year immediately following the calendar year to which the information relates. Additionally, if the ALE sponsors a self-insured health plan, a copy of Form 1095-C must be given to any employee (whether or not he was a full-time employee at any time of the year) who enrolled (or had family members who enrolled) in the self-insured coverage. Consent to furnish statement electronically. The requirement to obtain affirmative consent to furnish a statement electronically ensures that statements are sent electronically only to individuals who are able to access them. An individual may consent on paper or electronically, such as by . If consent is on paper, the individual must confirm the consent electronically. A statement may be furnished electronically by or by informing the individual how to access the statement on the employer s website. Penalties Penalties may be assessed under IRC Sec for failure to file Forms 1095-C and 1094-C with the IRS and under IRC Sec for failure to furnish a correct copy of Form 1095-C (or an approved substitute form) to each full-time employee. For 2017 information returns filed in 2018, the Section 6721 penalty ranges from $50 $260 for each incorrect return (that is, Form 1095-C) sent to the IRS, depending on when (or if) the failure is corrected. The maximum annual penalty is $3,218,500 [IRC Sec. 6721(a)(1); Rev. Proc ]. For filers with average annual gross receipts of $5 million or less for the three most recent tax years, the maximum penalty is $1,072,500. The penalties are higher if there is intentional disregard for the filing requirements. The Section 6722 penalty ranges from $50 $260 for each incorrect return (that is, Form 1095-C) sent to a full-time employee (or for a return not sent), depending on when (or if) the failure is corrected. The maximum penalty that can be assessed for failure to furnish the correct statement to full-time employees is $3,218,500 [IRC Sec. 6722(a)(1); Rev. Proc ]. For filers with average annual gross receipts of $5 million or less for the three most recent tax years, the maximum penalty is $1,072,500. The penalties are higher if there is intentional disregard for the filing requirements. Note: Under IRC Sec. 6724, penalties assessed under IRC Secs and 6722 may be waived if the failure is due to reasonable cause. Health Insurance Coverage Reporting on Form 1095-B Certain health insurance providers (and employers providing selfinsured health benefits) must file Form 1095-B (Health Coverage) with the IRS and provide a copy of the form to individuals. A copy of Form 1095-B is on Page Form 1095-B reports information required by IRC Sec on the type of health insurance provided to individuals. Fully insured coverage sponsored by employers, multiemployer plans and individual insurance coverage that is purchased outside of a state s health insurance marketplace is reported on Form B. Coverage obtained by employees of small employers through the Small Business Health Options Program (SHOP) marketplace (see Tab 6) also is reported on Form 1095-B. However, coverage in qualified health plans (QHPs) that individuals enroll in through the individual market of a state s health insurance marketplace for which individuals may receive a premium tax credit is reported on Form 1095-A (Health Insurance Marketplace Statement). (See a copy of Form 1095-A on Page 8-33.) Note: Catastrophic coverage that can be purchased through a state insurance marketplace should be reported on Form 1095-B. However, the IRS is not requiring insurers to report this coverage on Form 1095-B until required by final regulations. The IRS does encourage insurers to voluntarily report on catastrophic plan coverage enrolled in through a marketplace. Individuals enrolled only in catastrophic coverage are not eligible for a premium tax credit to help pay for the coverage. The social security number (SSN) of the employee or any family member receiving coverage on Form 1095-C can be truncated on the copy of the form given to the employee by showing only the last four digits of the SSN and replacing the first five digits with asterisks (*) or Xs. Truncation is not allowed on forms filed with the IRS. The employer s EIN may not be truncated on either the statement furnished to the employee or the forms filed with the IRS. Forms 1095-C must be furnished to employees on paper by mail or hand-delivered, unless the recipient affirmatively consents to receive the statement in an electronic format. If mailed, the statement must be sent to the employee s last known permanent address, or if no permanent address is known, to the employee s temporary address Edition Health Care Reform Quickfinder Note: The Handbook IRS has extended the time to furnish a copy of the 2017 Form Replacement Page 1/ C to an employee until March 2, (IRS Notice )

13 However, the IRS has extended the date to March 2, 2018, for 2017 Forms 1095-B. (IRS Notice ) The IRS uses the information reported on Form 1095-B to enforce the individual mandate. Individuals use the information reported on the form to determine that they had adequate insurance when preparing their individual income tax returns and to identify the months without coverage for which they may be subject to an individual shared responsibility penalty (see Tab 1). Generally, Form 1095-B is filed by health insurance issuers or carriers to report fully-insured coverage, or by government agencies for government-sponsored programs (such as Medicare). Therefore, individuals with fully-insured health insurance coverage through an employer should receive a Form 1095-B from the insurer. If the employer is an ALE, the employee will also receive a Form 1095-C from the employer. A small employer that is not an ALE must file Form 1095-B for any employee who enrolled in a self-insured plan sponsored by the employer. ALEs with self-insured plans use Part III of Form 1095-C to satisfy their Section 6055 reporting obligations (see Health Insurance Coverage Reporting on Form 1095-C on Page 8-3). Therefore, employers with self-insured plans should be sure which form they need to file. Information Reported on Form 1095-B Part I, responsible individual. In Part I of Form 1095-B, information on the responsible individual, to whom the form is sent is entered. The responsible individual is (1) the primary name on the insurance coverage or (2) the person who, based on a relationship to individuals covered by the insurance or some other circumstances, is the individual who should receive the statement. Generally, the responsible individual is the taxpayer who is liable for the individual shared responsibility penalty for the covered individual. For employer-sponsored insurance that is fully-insured and reported on Form 1095-B, the responsible individual generally is the employee or former employee. [Reg (b)(11)] The responsible individual s SSN can be truncated on the copy of Form 1095-B given to the individual. Part II, employer-sponsored coverage. Part II of Form 1095-B is completed by issuers or carriers only if code A (SHOP coverage) or code B (employer-sponsored coverage) is entered on line 8. The identifying information for the employer is entered in this section. Employers reporting self-insured group health plan coverage on Form 1095-B enter code B on line 8, but don t complete Part II. The employer s EIN reported in Part II may be truncated on copies of Form 1095-B furnished to recipients. However, the filer s EIN may not be truncated on the statement. Truncation of TINs, including EINs, is not allowed on returns filed with the IRS. Part III, issuer or other coverage provider. The plan provider identifying information is entered in Part III of Form 1095-B. The plan provider is the sponsor of a self-insured employer plan, an issuer or carrier of insured coverage, government agency providing government-sponsored coverage or other coverage sponsor. The EIN of the plan provider can t be truncated on any copy of Form 1095-B. Part IV, covered individuals. In Part IV of Form 1095-B, information about all of the individuals covered by the plan or policy is reported. If more than six individuals were covered under the policy or plan, a Form 1095-B, Part IV Continuation Sheet is used to report information for the additional individuals. The name of each covered individual is entered on a separate line in column (a). The individual s SSN (or TIN) is entered in column (b). If an SSN (or TIN) is not available, the individual s date of birth is entered in column (c). U Caution: The filer of Form 1095-B (for example, an employer with self-insured coverage) should obtain the SSN or other TIN for every person enrolled in the coverage on the application for coverage. If an SSN is not provided on the application, the filer should make another request within 75 days of the application. The IRS may impose penalties on the filer if a date of birth is used and the filer did not properly solicit each individual s SSN. [Prop. Reg (h); Notice ] Note: On the Form 1095-B sent to the responsible individual, the SSN (or TIN) for each covered individual may be truncated. Columns (d) and (e) are used to indicate the months in which the individual was covered by the plan for at least one day during the month. If the individual had coverage for at least one day per month for all 12 months of the year, the box in column (d) is checked and column (e) is left blank. If coverage was not provided for at least one day during each month of the year, the applicable monthly boxes in column (e) are marked. Filing Form 1095-B and Furnishing Copy to Responsible Individual Forms 1095-B must be filed with the IRS using Form 1094-B (Transmittal of Health Coverage Information Returns). The returns must be filed on or before February 28 (March 31, if filed electronically) of the year immediately following the calendar year to which the return relates. A copy of Form 1095-B must be provided to the responsible individual on or before January 31 of the year immediately following the calendar year to which the return relates. A 30-day extension to file the returns with the IRS can be obtained by filing Form 8809 (Request for Extension of Time to File Information Returns) on or before the due date. Forms 1095-B and transmittal Form 1094-B are required to be filed electronically with the IRS unless the reporting entity files fewer than 250 Forms 1095-B for the calendar year. Reporting entities that are not required to file electronically may choose to do so. The IRS encourages electronic filing by all filers. Penalties Penalties may be assessed under IRC Sec for failure to file Form 1095-B with the IRS and under IRC Sec for failure to furnish a correct copy of the form (or an approved substitute form) to each responsible individual. See Penalties on Page 8-6 for additional information on the penalties. Medical Loss Ratio Rebates Insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, rather than administrative costs. This is called the medical loss ratio (MLR). Insurers that do not meet this ratio must provide rebates to their policyholders, which is typically an employer that sponsors a group health plan. The MLR is the percentage of total premiums received that a health insurance issuer spends for claims and health care quality improvements. The total premium amount used in the calculation is reduced by certain taxes, fees and other allowable adjustments. Plans issued through the large group market must maintain an MLR of at least 85% or provide a premium rebate to policyholders. For plans issued through the small group and individual markets, issuers must maintain an MLR of at least 80%. U Caution: States are permitted to establish a higher MLR standard than the 80%/85% provided in the ACA. Insurance companies generally pay the rebates to the individual policyholders as cash payments. For group plans, the rebates are generally handled by reducing premiums for some or all months of the next plan year. Replacement Page 1/2018 The IRS is providing penalty relief for filers of 2017 Forms 1095-B that make a 2018 Edition Health Care Reform Quickfinder Handbook 8-7 good faith effort to comply with the reporting requirements. (IRS Notice )

14 Example: The CI self-insured health plan offers self-only coverage. The Form 5500 reports 4,000 plan participants on the first day of the plan year and 4,200 plan participants on the last day of the plan year. For purposes of calculating the fee using the Form 5500 method, CI calculates the number of lives covered for the plan year is 4,100 [(4, ,200) 2]. Self-only and other coverage. The average number of lives covered under a plan that provides coverage other than self-only coverage equals the sum of total participants covered at the beginning and the end of the plan year, as reported on the Form 5500 or Form 5500 SF filed for the applicable plan. Example: The CI self-insured health plan offers self-only coverage and family coverage. The Form 5500 reports 4,000 plan participants on the first day of the plan year and 4,200 plan participants on the last day of the plan year. For purposes of calculating the fee using the Form 5500 method, the number of lives covered for the plan year is 8,200 (4, ,200). Special rule for FSAs and HRAs. If a plan sponsor does not establish or maintain a plan other than a flexible spending arrangement (FSA) or a health reimbursement arrangement (HRA), the sponsor can treat each participant as a single life. Accordingly, the lives covered do not include any spouse, dependent or beneficiary of the participant. [Reg (c)(2)(iv)] Consistency within plan year. A plan sponsor must use the same method of calculating the average number of lives covered under the plan consistently for the duration of the plan year. However, a plan sponsor may use a different method from one plan year to the next. Reporting and paying the fee. The fee is reported annually on the second quarter Form 720, which is due no later than July 31 immediately following the last day of the plan year to which the fee applies. The fee must be paid when the Form 720 is filed. Plan sponsors that are required to pay the fee but are not subject to other excise tax liabilities must file Form 720 only once a year. No form is required for the first, third or fourth quarters of the year. Deposits are not required for this fee. U Caution: Form 720 (Quarterly Federal Excise Tax Return) is a six-page return that is used to report all excise taxes. Information pertaining to the PCORI fee is entered on page 2 in Part II of the form. The payment, if paid through the EFTPS, should be applied to the second quarter (in EFTPS, select Q2 for the Quarter under Tax Period on the Business Tax Payment page)., a health reimbursement arrangement (HRA) or a qualified small employer health reimbursement arrangement (QSEHRA), the Reporting Employer Provided Health Coverage on Form W-2 Employers are required to report the aggregate cost of health coverage on an employee s Form W-2 in box 12, using code DD. The amount reported is the insurance costs paid by both the employer and the employee, whether the employee s portion is paid with pretax or after-tax monies. It includes amounts applicable to the employee and any other person covered under the plan because of a relationship to the employee, such as a spouse and children. Amounts included in the employee s taxable income (for example, premiums paid for coverage for a domestic partner who does not qualify as the employee s dependent or legal spouse) are included in the reported amount. This reporting is for informational purposes only to provide employees useful information on the cost of coverage. It does not affect whether any particular coverage is excludable from the employee s compensation, nor does it change the reporting requirements for amounts that are includable in an employee s income. Reporting relief. Until further guidance is issued, small employers are not required to report the aggregate cost of health coverage. A small employer is one that was required to file fewer than 250 Forms W-2 for the preceding calendar year (IRS Notice ). The number of Forms W-2 the employer files includes any forms filed on its behalf by an agent. However, a small employer can voluntarily report the cost. Additionally, employers that furnish a Form W-2 to an employee who terminates before the end of a calendar year and requests a Form W-2 before the end of that year, do not have to report any amount using code DD. Who must report. Employers that provide applicable employersponsored coverage under a group health plan are subject to the reporting requirement. This includes businesses, tax-exempt organizations and federal, state and local government entities. Plans maintained primarily for members of the military and their families along with plans of federally recognized Indian tribal governments are not subject to this requirement. Retirees. An employer is not required to issue a Form W-2 solely to report the value of the health care coverage for retirees or other employees or former employees to whom the employer would not otherwise provide a Form W-2. The Form W-2 Reporting of Employer-Sponsored Health Coverage chart on Page 8-13 shows the reporting requirements for various types of coverage for box 12, code DD. Whether the cost of a particular type of coverage is included in the code DD reported amount has no bearing on other reporting requirements for that coverage. For example, while contributions to an HSA are not reported in box 12, code DD, certain HSA contributions are reported in box 12, code W (see general instructions for Forms W-2 and W-3) Edition Health Care Reform Quickfinder Handbook Replacement Page 1/2018