The IRS has issued Notice 2013-42 providing valuable transition relief from the Individual Mandate. The Individual Mandate generally requires all taxpayers to maintain minimum essential coverage beginning January 1, 2014. If a taxpayer does not maintain minimum essential coverage, the taxpayer will be assessed a tax penalty that is the greater of a flat dollar amount or a percentage of household income.
This transition relief is limited to employees who are eligible for an employer sponsored group health plan that operates on a non-calendar year. Citing the limited transition relief available to employers offering a non-calendar year health plan as well as the ability of an employer to permit changes in elections for benefits under its Section 125 Cafeteria Plan in anticipation of the Health Insurance Marketplaces coming online, the IRS will allow employees and their spouses or dependents who are eligible to enroll in a non-calendar year employer sponsored health plan to avoid Individual Mandate tax penalties for the months between January 1, 2014 and the month that the employer’s 2013-2014 plan year ends.
For example, John Smith is employed by ABC Company. He is eligible for ABC Company’s group health plan, but has chosen not to enroll. ABC Company’s group health plan begins July 1 of each year and ends on June 30. Under this transition relief, John Smith would not have to enroll in ABC Company’s group health plan effective July 1, 2013 in order to avoid Individual Mandate penalties beginning January 1, 2014. John Smith could wait to enroll effective July 1, 2014, and he would not be subject to any Individual Mandate tax penalties for the months of January 2014-June 2014 for failing to maintain health insurance coverage.
Notice 2013-42 provides welcome relief to employees of employers offering non-calendar year plans. Under the Employer Shared Responsibility proposed regulations issued late last year, employers may (but are not required to) allow a one-time election change for an employee to either come off of the group health plan and enroll in Health Insurance Marketplace coverage, or to enroll in or increase coverage under the group health plan to avoid Individual Mandate tax penalties. With this new clarification, employees will not be required to enroll early in an employer sponsored group health plan or enroll in other health insurance coverage through the Health Insurance Marketplace to avoid Individual Mandate tax penalties.
For more information, see Notice 2013-42.
