- The tax reform bill will eliminate the individual mandate penalty, beginning in 2019.
- Individuals will no longer be penalized for failing to obtain acceptable health insurance coverage for 2019 and beyond.
- Individual mandate penalties can still apply for 2017 and 2018.
- Forms 1095-B and 1095-C deadlines extended
December 22, 2017 – The tax reform bill signed into law
March 2, 2018 – Extended deadline to furnish 1095-B and 1095-C Forms
2019 Tax Year – Individual mandate penalties will be reduced to zero.
On Dec. 22, 2017, President Donald Trump signed into law the tax reform bill, called the Tax Cuts and Jobs Act , after it passed both the U.S. Senate and the U.S. House of Representatives.
This tax reform bill makes significant changes to the federal tax code. The bill does not impact the majority of the Affordable Care Act (ACA) tax provisions. However, it doesreduce the ACA’s individual shared responsibility (or individual mandate) penalty to zero, effective beginning in 2019 .
As a result, beginning in 2019, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage.
Although the tax reform bill eliminates the individual mandate penalty, the repeal does not become effective until 2019.
As a result, individuals continue to be required to comply with the mandate (or pay a penalty) for 2017 and 2018 . A failure to obtain acceptable health insurance coverage for these years may still result in a penalty for the individual.
The Individual Mandate
The ACA’s individual mandate, which took effect in 2014, requires most individuals to obtain acceptable health insurance coverage for themselves and their family members or pay a penalty. The mandate is enforced each year on individual federal tax returns. Starting in 2015, individuals filing a tax return for the previous tax year indicate, by checking a box on their returns, which members of their family (including themselves) had health insurance coverage for the year (or qualified for an exemption from the individual mandate). Based on this information, the IRS then assesses a penalty for each nonexempt family member without coverage.
Effect of the Tax Reform Bill
The tax reform bill will reduce the ACA’s individual mandate penalty to zero, effective beginning with the 2019 tax year. This effectively eliminates the individual mandate penalty for the 2019 tax year and beyond . As a result, beginning with the 2019 tax year, individuals will no longer be penalized for failing to obtain acceptable health insurance coverage for themselves and their family members.
Impact on Years Prior to 2019
Although the tax reform bill eliminates the ACA’s individual mandate penalty, this repeal does not take effect until 2019. As a result, individuals continue to be required to comply with the mandate (or pay a penalty) for 2017 and 2018 . A failure to obtain acceptable health insurance coverage for these years may still result in a penalty for the individual.
Therefore, nonexempt individuals should continue to maintain acceptable health coverage in 2017 and 2018, and should indicate on their 2017 and 2018 tax returns whether they (and everyone in their family):
- Had health coverage for the year;
- Qualified for an exemption from the individual mandate; or
- Will pay an individual mandate penalty.
In addition, keep in mind that individuals who are liable for a penalty for failing to obtain acceptable health coverage in 2018 will be required to pay that penalty when they file their federal income taxes in 2019. As a result, some individuals may be required to pay the individual mandate penalty in early 2019, based on their noncompliance for the 2018 tax year .
Effect on Other ACA Provisions
Despite the repeal of the individual mandate penalty, employers and individuals must continue to comply with all other ACA provisions . The tax reform bill does not impact any other ACA provisions, including the Cadillac tax on high-cost group health coverage, the PCORI fees and the health insurance providers’ fee. In addition, the employer shared responsibility (pay or play) rules and related Section 6055 and Section 6056 reporting requirements are still in place.
ACA Reporting Extension
Relatedly, the IRS issued Notice 2018-06 on December 22, extending the due date for furnishing the 2016 Forms 1095-B and 1095-C to the insured and/or employees from January 31, 2018 to March 2, 2018 . This 30-day extension is automatic . Employers and providers don’t have to request it.
The due dates to file information returns with the IRS have not been extended and remain due on February 28 for paper filers and April 2 for electronic filers (electronic filing is required for 250 or more forms). Automatic extensions will still be available by filing a Form 8809.
The IRS has issued the following advice to employees:
Because of these extensions, individuals may not receive their Forms 1095-B or 1095-C by the time they are ready to file their 2017 individual income tax return. While information on these forms may assist in preparing a return, the forms are not required to file. Taxpayers can prepare and file their returns using other information about their health coverage. They do not have to wait for Forms 1095-B or 1095-C to file.
Other Provisions in the Tax Reform Bill
The tax reform bill will have a substantial impact on businesses. For example, the tax reform bill:
- Lowers the corporate tax rate—Beginning in 2018, the bill reduces the corporate tax rate to 21 percent (down from 35 percent) and eliminates the corporate Alternative Minimum Tax (AMT).
- Creates a new tax deduction for small businesses—The bill establishes a new 20 percent tax deduction for all businesses conducted as sole proprietorships, partnerships, LLCs and S corporations.
- Allows “expensing” of capital investments—The bill allows businesses to immediately write off (or “expense”) the cost of new investments for at least five years.
- Repeals or restricts many existing business deductions and credits—The bill also eliminates the existing domestic production (Section 199) deduction and repeals or restricts numerous other special exclusions and deductions (including those for employer provided transportation and commuting benefits). However, the bill explicitly preserves business credits related to research and development and low-income housing, as well as deductions or exclusions for employer provided dependent care assistance programs (DCAPs), education assistance programs and adoption assistance programs.
- Ends “offshoring” incentives—The bill ends the incentive to offshore jobs and keep foreign profits overseas by exempting them when they are repatriated to the United States. It imposes a one-time, low tax rate on wealth that has already accumulated overseas so there is no tax incentive to keep the money offshore.
With respect to individuals, the tax reform bill does the following, for example:
- Revises and Lowers Individual Tax Rates. In seven brackets, the tax rates range from 10% to 37%.
- Increases Standard Deduction. Increases deduction to $12,000 / $24,000 (singles/couples), but eliminates personal exemptions.
- Increases Family Tax Credits. The child tax credit would double (to $2000); has a larger refundable portion that would allow more lower-income families to benefit. Family tax credits phase out at $200K/$400K (singles/couples)
- Increases Estate Tax Exclusion. Double the estate and gift tax basic exclusion amount to $10 million (in Code § 2010(c)(3)) after 2017 and retain the stepped-up basis in estate property
- Modifies Medical Expense Deduction. Reduce the threshold to 7.5 percent of AGI for 2017 and 2018, and return to 10% thereafter.
- Modifies Mortgage Interest Deduction. Deduction for home acquisition indebtedness would be limited to interest paid on up to $750,000 ($375,000 if married filing separately) of acquisition indebtedness for homes purchased after December 15, 2017.
The complete conference agreement between the U.S. Senate and U.S. House of Representatives on the tax reform bill is located here.
Provided by FBMC Benefits Management, Inc. This ACA Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. © 2017 Zywave, Inc. All rights reserved.