[Federal Register Volume 78, Number 22 (Friday, February 1, 2013)]
[Proposed Rules]
[Pages 7314-7331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-02141]



[[Page 7314]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-148500-12]
RIN 1545-BL36


Shared Responsibility Payment for Not Maintaining Minimum 
Essential Coverage

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
requirement to maintain minimum essential coverage enacted by the 
Patient Protection and Affordable Care Act and the Health Care and 
Education Reconciliation Act of 2010, as amended by the TRICARE 
Affirmation Act and Public Law 111-173. These proposed regulations 
provide guidance on the liability for the shared responsibility payment 
for not maintaining minimum essential coverage. This document also 
provides notice of a public hearing on these proposed regulations.

DATES: Comments must be received by May 2, 2013. Outlines of topics to 
be discussed at the public hearing scheduled for May 29, 2013, at 10 
a.m., must be received by May 3, 2013.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-148500-12), Room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
148500-12), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at www.regulations.gov (IRS REG-148500-12). The 
public hearing will be held in the IRS Auditorium, Internal Revenue 
Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Sue-Jean Kim or John B. Lovelace, (202) 622-4960; concerning the 
submission of comments, the public hearing, and to be placed on the 
building access list to attend the public hearing, Oluwafunmilayo 
Taylor, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)). Comments on the collection of information should be sent to 
the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, 
Washington, DC 20224.
    Comments on the collection of information should be received by 
April 2, 2013. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in these proposed regulations is in 
Sec.  1.5000A-3 and Sec.  1.5000A-4. The collection of information is 
necessary to determine whether the shared responsibility payment 
provision applies to a taxpayer and compute any shared responsibility 
payment imposed on a taxpayer. The likely respondents are individuals 
required to file Federal income tax returns under section 6012(a)(1) of 
the Internal Revenue Code (Code).
    The burden for the collection of information contained in proposed 
regulation Sec.  1.5000A-3 and Sec.  1.5000A-4 will be reflected in the 
burden on a form that the IRS will create to request the information in 
the proposed regulation.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.

Background

    Under the Patient Protection and Affordable Care Act, Public Law 
111-148 (124 Stat. 119 (2010)) and the Health Care and Education 
Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)) 
(collectively, the Affordable Care Act), the Federal government, State 
governments, insurers, employers, and individuals are entrusted with 
shared responsibility to reform and improve the availability, quality, 
and affordability of health insurance coverage in the United States. 
The Affordable Care Act expands Medicaid eligibility for residents of 
electing States and increases Federal funding for the expansion. The 
Affordable Care Act also provides individuals and small businesses the 
ability to purchase private health insurance through State-based, State 
Partnership, or Federally facilitated competitive market places called 
Affordable Insurance Exchanges (Exchanges). Through Exchanges, 
insurance companies will compete for business on a level playing field 
and qualified consumers will have a choice of health plans to fit their 
needs.
    In addition, the Affordable Care Act includes various insurance 
market reforms to increase the ability of individuals to enroll in 
health insurance coverage regardless of preexisting conditions and to 
eliminate the ability of insurers to charge higher premium prices based 
on factors other than age, tobacco use, rating area, or family size. 
Moreover, the Affordable Care Act builds upon the existing private 
employer-based health insurance system to ensure continued access to 
high quality health insurance coverage at low cost.
    Finally, to ensure effective and efficient implementation of the 
insurance market reforms, the Affordable Care Act requires a nonexempt 
individual to maintain minimum essential coverage or make a shared 
responsibility payment. Section 1501(b) of the Affordable Care Act 
added section 5000A to a new chapter 48 of subtitle D (Miscellaneous 
Excise Taxes) of the Code effective for months beginning after December 
31, 2013. Section 5000A was subsequently amended by the TRICARE 
Affirmation Act of 2010, Public Law 111-159 (124 Stat. 1123) and Public 
Law 111-173 (124 Stat. 1215).

Shared Responsibility Payment for Not Maintaining Minimum Essential 
Coverage

    Section 5000A provides nonexempt individuals with a choice: 
maintain minimum essential coverage for themselves and any nonexempt 
family members or include an additional payment with their Federal 
income tax return. Section 5000A(a) and section

[[Page 7315]]

5000A(b) provide that nonexempt individuals must have minimum essential 
coverage for each month beginning after December 31, 2013, or make an 
additional payment (the shared responsibility payment) with their 
Federal income tax return for the taxable year that includes such 
month. Under section 5000A(b)(3)(A), a taxpayer is liable for the 
shared responsibility payment if any nonexempt individual who may be 
claimed by the taxpayer as a dependent for a taxable year does not have 
minimum essential coverage in a month included in that taxable year. 
Married taxpayers filing a joint return for any taxable year are 
jointly liable for any shared responsibility payment imposed for the 
year.

Exempt Individuals

    Many individuals are exempt from the shared responsibility payment, 
including some whose religious beliefs conflict with acceptance of the 
benefits of private or public insurance and those who do not have an 
affordable health insurance coverage option available. Section 
1311(d)(4)(H) of the Affordable Care Act (42 U.S.C. 18031(d)(4)(H)) 
directs Exchanges to issue to qualified individuals certificates of 
exemption from the requirement to maintain minimum essential coverage 
or the shared responsibility payment under section 5000A. Section 1411 
of the Affordable Care Act (42 U.S.C. 18081) generally provides 
procedures for determining an individual's eligibility for various 
benefits relating to health coverage, including exemptions from the 
application of section 5000A. The Department of Health and Human 
Services and the Department of the Treasury are working in close 
coordination to release regulations and other guidance related to 
Exchanges.
    On March 27, 2012, the Department of Health and Human Services 
released final regulations related to the establishment of, and the 
standards applicable to, Exchanges (45 CFR 155.10 and following 
sections (Exchange regulations)). Section 155.200(b) of the Exchange 
regulations directs an Exchange to issue exemption certificates in 
accordance with sections 1311(d)(4)(H) and 1411 of the Affordable Care 
Act (42 U.S.C. 18031(d)(4)(H), 18081). The Department of Health and 
Human Services is publishing proposed regulations detailing the 
standards by which Exchanges will issue certificates of exemption under 
section 5000A. Patient Protection and Affordable Care Act; Exchange 
Functions: Eligibility for Exemptions; Minimum Essential Coverage 
Provisions (to be codified at 45 CFR 155.600 and following sections).
    Section 5000A(d) and (e) describe individuals who are exempt from 
making the shared responsibility payment even if they do not have 
minimum essential coverage for a given month. Under section 
5000A(d)(2)(A), an individual is exempt for a month for which an 
Exchange certifies that the individual is a member of a recognized 
religious sect or a division thereof described in section 1402(g)(1) 
and is an adherent of established tenets or teachings of that sect or 
division. Section 1402(g)(1) provides an exemption from self-employment 
tax for members of a qualified religious sect or division thereof. A 
qualified religious sect or division thereof described in section 
1402(g)(1) is a sect or division thereof that the Commissioner of 
Social Security finds: (1) has established tenets or teachings by 
reason of which its members and adherents are conscientiously opposed 
to acceptance of the 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); (2) maintains, and has 
maintained for a substantial period of time, a practice whereby its 
members make provision for its dependent members that is reasonable in 
view of their general level of living; and (3) has been in existence at 
all times since December 31, 1950.
    Section 5000A(d)(2)(B) provides that an individual is exempt for a 
month that the individual is a member of a health care sharing 
ministry. A health care sharing ministry is an organization: (1) which 
is described in section 501(c)(3) and exempt from tax under section 
501(a); (2) members of which share a common set of ethical or religious 
beliefs and share medical expenses among themselves in accordance with 
those beliefs, and regardless of the State in which a member resides or 
is employed; (3) members of which retain membership even after they 
develop a medical condition; (4) which has itself (or a predecessor of 
which has) been in existence at all times since December 31, 1999; (5) 
members of which have continuously and without interruption shared 
medical expenses since at least December 31, 1999; and (6) which 
conducts an annual audit performed by an independent certified public 
accounting firm in accordance with generally accepted accounting 
principles the report of which is made available to members of the 
public upon request.
    Section 5000A(d)(3) provides that an individual is exempt for a 
month that the individual is neither a citizen or national of the 
United States nor an alien lawfully present in the United States.
    Section 5000A(d)(4) provides that an individual is exempt for a 
month that the individual is incarcerated, except for incarceration 
pending the disposition of charges.
    Section 5000A(e)(1) provides that an individual is exempt for a 
month for which the individual lacks access to affordable minimum 
essential coverage. For this purpose, an individual lacks access to 
affordable coverage if the individual's required contribution 
(determined on an annual basis) for minimum essential coverage exceeds 
a percentage (8 percent for 2014) of the individual's household income 
for the most recent taxable year for which the Secretary of Health and 
Human Services, in consultation with the Secretary, determines 
information is available.
    In general, section 5000A(c)(4)(B) defines a taxpayer's household 
income as the sum of the taxpayer's modified adjusted gross income and 
the modified adjusted gross income of any other member of a taxpayer's 
family (that is, individuals for whom the taxpayer properly claims a 
deduction under section 151 (relating to the personal exemption 
deduction)) who are required to file a Federal income tax return. Under 
section 5000A(c)(4)(C), modified adjusted gross income means adjusted 
gross income (within the meaning of section 62) increased by amounts 
excluded from gross income under section 911 and tax-exempt interest a 
taxpayer receives or accrues in the taxable year. Unlike section 
36B(d)(2)(B), modified adjusted gross income for purposes of section 
5000A does not include Social Security benefits that are not includable 
in gross income. For purposes of determining the affordability of 
minimum essential coverage under section 5000A(e)(1), the taxpayer's 
household income is increased by the portion of the required 
contribution made through a salary reduction arrangement and excluded 
from gross income.
    For purposes of determining household income, a taxpayer's family 
includes all individuals for whom the taxpayer properly claims a 
personal exemption deduction under section 151 for the taxable year. 
See also Sec.  1.36B-1(d). Taxpayers may claim a personal exemption 
deduction for themselves, a spouse, and each of their dependents.

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Section 152 provides that a taxpayer's dependent may be a qualifying 
child or qualifying relative, including an unrelated individual who 
lives with the taxpayer.
    For an employee eligible to purchase coverage under an eligible 
employer-sponsored plan, the required contribution for purposes of the 
exemption under section 5000A(e)(1) is the employee's share of the 
annual premium for self-only coverage. For an individual eligible to 
purchase coverage under an eligible employer-sponsored plan because the 
individual is related to an employee, the determination of whether the 
individual's coverage is affordable is made by reference to the 
employee's required contribution. For all individuals who are 
ineligible to purchase coverage under an eligible employer-sponsored 
plan, the required contribution is the annual premium for the lowest 
cost bronze plan available on the Exchange where the individual lives 
reduced by the credit allowable under section 36B for the taxable year 
(determined as if the individual enrolled in a plan through such 
Exchange for the entire taxable year).
    Section 5000A(e)(2) provides that an individual is exempt for a 
month included in a calendar year if the individual's household income 
for the most recent taxable year for which information is available is 
less than the amount of gross income specified in section 6012(a)(1) 
for the taxpayer. Section 6012(a)(1) provides, for each filing status, 
gross income thresholds above which individuals are required to file 
Federal income tax returns.
    As described in this preamble, income-based exemptions under 
section 5000A(e)(1) and section 5000A(e)(2) rely upon household income 
for the most recent taxable year that the Secretary of Health and Human 
Services, after consultation with the Secretary of Treasury, determines 
information is available. The Secretary of Health and Human Services, 
after consultation with the Secretary of the Treasury, determined that 
the household income for these exemptions that is available and 
relevant is the household income for the year for which an exemption is 
being claimed. See section III.A.3.b. of the preamble to Patient 
Protection and Affordable Care Act; Exchange Functions: Eligibility for 
Exemptions; Minimum Essential Coverage Provisions (to be codified at 45 
CFR 155.600 and following sections, and 45 CFR 156.600 and following 
sections). The determination by the Secretary of Health and Human 
Services is reflected in the proposed regulations.
    Section 5000A(e)(3) provides that an individual is exempt for a 
month that the individual is a member of an Indian tribe as defined in 
section 45A(c)(6). Section 45A(c)(6) describes certain Federally 
recognized Indian tribes (including any qualified Alaska Native village 
or regional or village corporation). The Federally recognized Indian 
tribes are listed in Indian Entities Recognized and Eligible to Receive 
Services from the United States Bureau of Indian Affairs, 75 FR 60810 
(Oct. 1, 2010), as supplemented by 75 FR 661124 (Oct. 27, 2010), or its 
successor.
    Under section 5000A(e)(4), an individual is exempt for a month the 
last day of which occurs in a period when the individual does not have 
minimum essential coverage for a continuous period of less than three 
months (a short coverage gap). The length of a gap in coverage is 
determined without regard to the calendar years in which months in the 
gap occur. If an individual has more than one short coverage gap in a 
calendar year, the exemption applies only to the earliest short 
coverage gap. Section 5000A(e)(4) authorizes the Secretary to issue 
regulations that provide for collecting the shared responsibility 
payment in cases where gaps in coverage straddle more than one taxable 
year.
    Section 5000A(e)(5) provides that an individual is exempt for a 
month that the Exchange determines, in accordance with guidance 
promulgated by the Secretary of Health and Human Services, the 
individual suffered a hardship that prevented the individual from 
obtaining coverage under a qualified health plan. The Department of 
Health and Human Services is proposing rules on the criteria for 
application of the hardship exemption. Patient Protection and 
Affordable Care Act; Exchange Functions: Eligibility for Exemptions; 
Minimum Essential Coverage (to be codified at 45 CFR 155.605(g)).

Computation of Shared Responsibility Payment

    Under section 5000A(c), the amount of the shared responsibility 
payment for any taxable year is generally the sum of monthly penalty 
amounts for all months in the taxable year in which any nonexempt 
individual for whom the taxpayer is liable under section 5000A(b) did 
not have minimum essential coverage. The shared responsibility payment 
amount for any taxable year may not exceed an amount equal to the 
national average premium for bronze-level qualified health plans 
offered through Exchanges for the applicable family size involved.
    The monthly penalty amount for a month is equal to \1/12\ of the 
greater of the following amounts: (1) The flat dollar amount or (2) the 
percentage of income. The flat dollar amount is the lesser of the 
following amounts: (a) the sum of the applicable dollar amounts for all 
nonexempt individuals without minimum essential coverage for whom the 
taxpayer is liable or (b) 300 percent of the applicable dollar amount. 
The applicable dollar amount is $95 for 2014, $325 for 2015, and $695 
for 2016, and will be increased for calendar years beginning after 2016 
by a cost-of-living adjustment. If a nonexempt individual has not 
attained the age of 18 as of the beginning of a month, the applicable 
dollar amount for that individual is one-half of the regular applicable 
dollar amount.
    The percentage of income is calculated as the excess of the 
taxpayer's household income over the taxpayer's Federal income tax 
return filing threshold under section 6012(a)(1), multiplied by a 
percentage figure. The percentage figure is 1 percent for taxable years 
beginning in 2014, 2 percent for taxable years beginning in 2015, and 
2.5 percent for taxable years beginning after 2015.

Minimum Essential Coverage

    Section 5000A(f) defines minimum essential coverage as one of the 
following: (1) Coverage under a specified government sponsored program, 
(2) coverage under an eligible employer-sponsored plan, (3) coverage 
under a health plan offered in the individual market within a State, 
(4) coverage under a grandfathered health plan, and (5) other health 
benefits coverage that the Secretary of Health and Human Services, in 
coordination with the Secretary, recognizes for purposes of section 
5000A(f).
    Under section 5000A(f)(1)(A), specified government sponsored 
programs include the following: (1) The Medicare program under part A 
of title XVIII of the Social Security Act, (2) the Medicaid program 
under title XIX of the Social Security Act, (3) the Children's Health 
Insurance Program (CHIP) under title XXI of the Social Security Act, 
(4) medical coverage under chapter 55 of title 10, United States Code, 
including the TRICARE program, (5) veterans health care programs under 
chapter 17 or 18 of title 38, as determined by the Secretary of 
Veterans Affairs, in coordination with the Secretary of Health and 
Human Services and the Secretary of Treasury, (6) a health plan under 
section 2504(e) of title 22 relating

[[Page 7317]]

to Peace Corps volunteers, and (7) the Nonappropriated Fund Health 
Benefits Program of the Department of Defense, established under 
section 349 of the National Defense Authorization Act for Fiscal Year 
1995, Public Law 103-337 (10 U.S.C. 1587 note).
    Under section 5000A(f)(2), an eligible employer-sponsored plan is, 
with respect to an employee, a group health plan or group health 
insurance coverage offered by an employer to the employee that is: (1) 
a governmental plan, within the meaning of section 2791(d)(8) of the 
Public Health Service Act, or (2) any other plan or coverage offered in 
the small or large group market within a State. An eligible employer-
sponsored plan also includes a grandfathered health plan offered in a 
group market.
    Under section 1251 of the Affordable Care Act (42 U.S.C. 18011), a 
grandfathered health plan is a group health plan or health insurance 
coverage that provided coverage as of the enactment date of the 
Affordable Care Act (March 23, 2010) or in which an individual was 
enrolled as of that date. See also Sec.  54.9815-1251T(a) (providing 
guidance regarding grandfathered health plans).
    As described in this preamble, the Department of Health and Human 
Services, in coordination with the Treasury Department, may designate 
other health benefits coverage as minimum essential coverage. The 
Department of Health and Human Services is proposing a regulation that 
provides criteria and a process by which other types of coverage may be 
designated as minimum essential coverage. Patient Protection and 
Affordable Care Act; Exchange Functions: Eligibility for Exemptions; 
Minimum Essential Coverage Provisions (to be codified at 45 CFR 156.600 
and following sections).
    Under section 5000A(f)(3), health coverage that consists of 
coverage of certain excepted benefits specified in section 2791(c) of 
the Public Health Service Act (42 U.S.C. 300gg-91(c)) is not minimum 
essential coverage. There are four categories of excepted benefits. The 
first category includes accidental death and dismemberment coverage, 
disability insurance, general liability insurance, automobile liability 
insurance, workers' compensation, credit-only insurance (for example, 
mortgage insurance), and coverage for employer-provided on-site medical 
clinics. See 42 U.S.C. 300gg-91(c)(1). The second category of excepted 
benefits includes limited-scope dental or vision benefits, long-term 
care benefits, and benefits provided under certain health flexible 
spending arrangements. See 42 U.S.C. 300gg-91(c)(2). The third category 
of excepted benefits includes, but only if offered under a policy, 
certificate, or contract of insurance separate from, and not 
coordinated with, any group or individual health plan maintained by the 
same plan sponsor, coverage only for a specified disease or illness 
(for example, cancer-only policies) or fixed indemnity insurance (for 
example, a policy that pays a fixed dollar amount, such as $100, per 
day of hospitalization or illness regardless of the amount of medical 
expense incurred). See 42 U.S.C. 300gg-91(c)(3). The last category of 
excepted benefits includes, but only if offered under a policy, 
certificate, or contract of insurance separate from the primary health 
coverage, Medicare supplemental polices (also known as Medigap or 
MedSupp insurance), TRICARE supplemental policies, and similar 
supplemental coverage to coverage under a group health plan. See 42 
U.S.C. 300gg-91(c)(4).
    Under section 5000A(f)(4), an individual is treated as having 
minimum essential coverage for a month: (1) if the individual is a bona 
fide resident of a United States possession for the month or (2) if the 
month occurs during any period described in section 911(d)(1)(A) or 
section 911(d)(1)(B) that is applicable to the individual. Section 
911(d)(1)(A) is applicable to a citizen of the United States who has a 
tax home outside the United States and is a bona fide resident of a 
foreign country or countries during an uninterrupted period that 
includes an entire taxable year. For example, an individual who resides 
abroad for an entire calendar year is treated as having minimum 
essential coverage for each month of that calendar year regardless of 
whether the individual has health coverage of any type. Section 
911(d)(1)(B) is applicable to a U.S. citizen or U.S. resident (within 
the meaning of section 7701(b)) who has a tax home outside the United 
States and is present in a foreign country or countries for at least 
330 full days during a period of 12 consecutive months. In general, an 
individual who meets either of the foregoing residency requirements 
under section 911(d)(1) is treated as a qualified individual for 
purposes of section 911 and may elect to exclude certain foreign earned 
income and housing costs from gross income.

Administration and Procedure

    Under section 5000A(b)(2), an individual liable for the shared 
responsibility payment under section 5000A must report the payment with 
the individual's Federal income tax return for the taxable year 
including the month or months for which the payment is owed.
    Under section 5000A(g)(1), the shared responsibility payment is 
payable upon notice and demand by the Secretary. The shared 
responsibility payment is generally assessed and collected in the same 
manner as an assessable penalty under subchapter B of chapter 68 
(sections 6671 through 6725). Unlike the assessable penalties, however, 
the Secretary may not file notice of lien or levy on the taxpayer's 
property for failing to pay the assessed shared responsibility payment. 
Further, a taxpayer may not be subject to criminal prosecution or 
penalty for failing to pay the assessed shared responsibility payment 
in a timely manner.

Explanation of Provisions

1. Maintenance of Minimum Essential Coverage and Liability for Shared 
Responsibility Payment

    The proposed regulations provide that, for a month, a nonexempt 
individual must either have minimum essential coverage or pay the 
shared responsibility payment.
a. Coverage for a Month
    The proposed regulations provide that, for any calendar month, an 
individual is treated as having minimum essential coverage if the 
individual is enrolled in and entitled to receive benefits under a 
program or plan that is minimum essential coverage for at least one day 
during the month.
b. Liability for Shared Responsibility Payment
i. Liability for Dependents
    Under section 5000A(b)(3)(A), if an individual with respect to whom 
the shared responsibility payment is imposed for a month is another 
individual's dependent (as defined in section 152) for the taxable year 
including that month, the other individual is liable for the shared 
responsibility payment for the dependent. The proposed regulations 
clarify that a taxpayer is liable for the shared responsibility payment 
imposed with respect to any individual for a month in a taxable year 
for which the taxpayer may claim a personal exemption deduction for the 
individual (that is, the dependent) for that taxable year. Whether the 
taxpayer actually claims the individual as a dependent for the taxable 
year does not affect the taxpayer's liability for the shared 
responsibility payment for the individual.

[[Page 7318]]

    The proposed regulations provide special rules for determining 
liability for the shared responsibility payment attributable to 
individuals who are adopted or placed in foster care during a taxable 
year. If a taxpayer legally adopts a child and is entitled to claim the 
child as a dependent under section 151 for the taxable year when the 
adoption occurs, the taxpayer is not liable for a shared responsibility 
payment attributable to the child for the months before the adoption. 
Conversely, if a taxpayer who is entitled to claim a child as a 
dependent under section 151 for the taxable year places the child for 
adoption during the year, the taxpayer is not liable for a shared 
responsibility payment attributable to the child for the months after 
the adoption.
    The proposed regulations define shared responsibility family to 
include all individuals for whom a taxpayer (including a spouse, if 
married filing jointly) is liable for the shared responsibility 
payment. The proposed regulations clarify that a taxpayer who is an 
exempt individual remains liable for a shared responsibility payment 
imposed for a nonexempt dependent who does not have minimum essential 
coverage.
ii. Joint Liability
    Section 5000A(b)(3)(B) provides that, if an individual for whom the 
shared responsibility payment is imposed for a month files a joint 
return for the taxable year including that month, the individual and 
the individual's spouse are jointly liable for the shared 
responsibility payment. The proposed regulations clarify that whether 
one spouse is an exempt individual does not affect the joint liability 
of the two spouses for the shared responsibility payment.

2. Minimum Essential Coverage

a. Government Sponsored Programs
    Section 5000A(f)(1)(A) specifies several government sponsored 
programs as providing minimum essential coverage by referring to the 
Federal law authorizing a particular program. In most cases, the 
relevant law describes a single program or a discrete portion of a 
larger program. For example, section 5000A(f)(1)(A)(i) lists Part A of 
the Medicare program under title XVIII of the Social Security Act. 
However, in some cases, the relevant law establishes programs with 
limited coverage. For instance, some of the programs under title XIX of 
the Social Security Act do not provide a scope of benefits comparable 
to the primary Medicaid program under the same title. In addition, the 
Secretary of Veterans Affairs, in coordination with the Secretaries of 
Health and Human Services and Treasury, determined that only certain 
health care programs under chapter 17 or 18 of title 38, United States 
Code provide comprehensive benefits. The programs with limited coverage 
are similar to coverage consisting of excepted benefits that is not 
minimum essential coverage under section 5000A(f)(3). Accordingly, the 
proposed regulations identify limited benefit programs under title XIX 
of the Social Security Act that are not minimum essential coverage and 
specify comprehensive health care programs under chapter 17 or 18 of 
title 38, United States Code, that are minimum essential coverage.
b. Eligible Employer-Sponsored Plans
i. In General
    Section 5000A(f)(2) defines eligible employer-sponsored plan, for 
an employee, as a group health plan or group health insurance coverage 
offered by an employer to the employee that is either of the following: 
(1) A governmental plan (within the meaning of section 2791(d)(8) of 
the Public Health Service Act (PHSA) (42 U.S.C. 300gg-91(d)(8)) or (2) 
any other plan or coverage offered in the small or large group market 
within a State. The terms group health plan and group health insurance 
coverage are not defined in section 5000A. However, section 5000A(f)(5) 
provides that any term used in section 5000A that is also used in title 
I of the Affordable Care Act has the same meaning as when used in that 
title.
    Section 1301(b)(3) of the Affordable Care Act (42 U.S.C. 
18021(b)(3)) provides that group health plan has the same meaning as in 
section 2791(a) of the PHSA (42 U.S.C. 301gg-91(a)(1)). Section 2791(a) 
of the PHSA provides that group health plan means an employee welfare 
benefit plan (as defined in section 3(1) of the Employee Retirement 
Income Security Act of 1974 (ERISA) (29 U.S.C. 1002(1)) to the extent 
that the plan provides medical care (as defined in section 2791(a)(2) 
of the PHSA and including items and services paid for as medical care) 
to employees and their dependents directly or through insurance, 
reimbursement, or otherwise. Section 3(1) of ERISA defines employee 
welfare benefit plan as any plan, fund, or program established or 
maintained by an employer or by an employee organization, or by both, 
to the extent that the plan, fund, or program is established or 
maintained for the purpose of providing for its participants or their 
beneficiaries, through the purchase of insurance or otherwise, various 
benefits, which may include medical, surgical, or hospital care or 
benefits.
    Group health plans within the meaning of section 1301(b)(3) of the 
Affordable Care Act (42 U.S.C. 18021(b)(3)) include both insured health 
plans and self-insured health plans. Accordingly, a self-insured group 
health plan is an eligible employer-sponsored plan.
ii. Continuation and Retiree Coverage
    Employers are required to offer certain former employees 
continuation coverage under Federal or State law. Many employers offer 
health benefits coverage to retired employees. Under the PHSA and 
ERISA, group health plans and employee welfare benefit plans, 
respectively, include plans offered to former employees. Accordingly, 
the proposed regulations clarify that coverage provided by an employer 
to a former employee, including coverage under the Consolidated Omnibus 
Budget Reconciliation Act of 1985 (COBRA), Public Law 99-272 (100 Stat. 
82), and retiree health coverage, qualifies as coverage under an 
eligible employer-sponsored plan.
c. Other Health Benefits Coverage
    Under section 5000A(f)(1)(E), the Secretary of Health and Human 
Services, in coordination with the Secretary of the Treasury, may 
designate other health benefits coverage as minimum essential coverage. 
The Department of Health and Human Services is proposing rules 
providing standards for determining whether certain other types of 
health insurance coverage constitute minimum essential coverage and 
procedures for plan sponsors to follow for a plan to be identified as 
minimum essential coverage under section 5000A. Patient Protection and 
Affordable Care Act; Exchange Functions: Eligibility for Exemptions; 
Minimum Essential Coverage Provisions (to be codified at 45 CFR 156.600 
and following sections).

3. Exempt Individuals

a. In General
    The term applicable individual is used in section 5000A to describe 
an individual who is subject to the minimum essential coverage 
provision under section 5000A(a). Section 5000A(d)(2) through section 
5000A(d)(4) describe one category of individuals who are not applicable 
individuals for purposes of section

[[Page 7319]]

5000A. Section 5000A(e)(1) through 5000A(e)(5) describe another 
category of individuals who are exempt from liability for the shared 
responsibility payment imposed under section 5000A(b). Although the two 
categories are distinct in the statute, the consequence for individuals 
described in either category is the same: individuals in both 
categories are not subject to the shared responsibility payment for not 
maintaining minimum essential coverage. Accordingly, the proposed 
regulations refer to all individuals described in section 5000A(d)(2), 
(d)(3), or (d)(4), or section 5000A(e)(1), (e)(2), (e)(3), (e)(4), or 
(e)(5), as exempt individuals. For a month, a nonexempt individual is 
any individual who is alive for the entire month and is not an exempt 
individual for the month.
    The proposed regulations provide that, in general, an individual is 
treated as an exempt individual for a month if the individual is an 
exempt individual for at least one day in the month. In the case of 
certain individuals who are nonresident aliens (as defined in section 
7701(b)(1)(B)), individuals whose household income falls below the 
return filing threshold, and individuals who experience short coverage 
gaps, the proposed regulations provide rules on how to determine 
whether an individual is exempt for a particular month. An individual 
is exempt for all months included in a taxable year when the individual 
is a nonresident alien. In the case of an individual whose household 
income falls below the return filing threshold for a taxable year, the 
individual is exempt for all months in the taxable year. In the case of 
an individual experiencing a coverage gap, the individual is exempt for 
a month included in the first short coverage gap in a calendar year.
b. Members of Recognized Religious Sects or Divisions
    Under section 5000A(d)(2)(A), an individual is exempt for a month 
that the individual has in effect a religious conscience exemption 
certification. Only an Exchange may grant a religious conscience 
exemption certification. Individuals who are members of a recognized 
religious sect or division thereof described in section 1402(g)(1) and 
who are adherents of the established tenets or teachings of the sect or 
division are eligible to receive a religious conscience exemption 
certification.
c. Exempt Noncitizens
    The proposed regulations clarify that an individual who is not a 
citizen or national of the United States is exempt for a month if the 
individual is not lawfully present in the United States in that month 
within the meaning of 45 CFR 155.20 (referring to lawful immigration 
status within the United States). In addition, an individual who is not 
a citizen or national of the United States is treated as not lawfully 
present in the United States for a month in a taxable year if the 
individual is a nonresident alien as defined in section 7701(b)(1)(B) 
for that taxable year.
d. Incarcerated Individuals
    Section 5000A(d)(4) provides that an individual is exempt for a 
month for which the individual is incarcerated (other than 
incarceration pending the disposition of charges). The proposed 
regulations clarify that an individual confined for at least one day in 
a jail, prison, or similar penal institution or correctional facility 
after the disposition of charges is exempt for the month that includes 
the day.
e. Individuals Who Cannot Afford Coverage
    Section 5000A(e)(1)(A) provides that an individual is exempt for a 
month for which the individual does not have access to affordable 
minimum essential coverage. For this purpose, an individual does not 
have access to affordable coverage for a month if the individual's 
required contribution (determined on an annual basis) for coverage for 
the month exceeds 8 percent of the taxpayer's household income for the 
taxable year. Under section 5000A(e)(1)(D), for any plan year beginning 
after 2014, the 8 percent figure is replaced by the percentage figure 
that the Secretary of Health and Human Services determines reflects the 
excess of the rate of premium growth between the preceding calendar 
year and 2013 over the rate of income growth for the same period.
    For purposes of determining affordability of coverage, in 
accordance with section 5000A(e)(1)(A), the proposed regulations 
require that the taxpayer's household income be increased by the 
portion of the required contribution made through a salary reduction 
arrangement and excluded from gross income. In many cases, information 
on the excluded amount may not be available to the IRS or to the 
employee. Comments are requested on practicable ways, if any, in which 
the required adjustment to household income may be made with the 
information available under sections 6051, 6055, 6056, or other 
provisions of the Code.
i. Individuals Eligible for Minimum Essential Coverage Under an 
Eligible Employer-Sponsored Plan
A. Eligibility for Coverage Under an Eligible Employer-Sponsored Plan
    If an individual is eligible for coverage under an eligible 
employer-sponsored plan, whether as an employee or as an individual 
related to an employee, the individual's qualification for the lack of 
affordable coverage exemption is determined solely by reference to the 
cost of coverage under the eligible employer-sponsored plan. The 
proposed regulations clarify that an employee or related individual is 
treated as eligible for coverage under an eligible employer-sponsored 
plan for each month included in the plan year if the employee or 
related individual could have enrolled in the plan for that month 
during an open or special enrollment period.
    The proposed regulations also clarify that an employed individual 
who is eligible for coverage under an eligible employer-sponsored plan 
offered by the individual's employer is not treated as eligible as a 
related individual for coverage under a plan offered by the employer of 
another employed individual. Thus, if two or more members of a family 
are employed and their respective employers offer self-only and family 
coverage under eligible employer-sponsored plans, each employed 
individual determines the affordability of coverage using the premium 
for the self-only coverage offered by the individual's employer. 
Neither individual may determine the affordability of coverage using 
the premium for family coverage offered by the other individual's 
employer. In these cases, each employed individual's self-only coverage 
may be treated as affordable, even though the aggregate cost of 
covering all employed individuals may exceed 8 percent of the family's 
household income. The Department of Health and Human Services is 
proposing rules that would permit families in these circumstances to 
qualify for the hardship exemption described in section 5000A(e)(5). 
Patient Protection and Affordable Care Act; Exchange Functions: 
Eligibility for Exemptions; Minimum Essential Coverage Provisions (to 
be codified at 45 CFR 155.605(g)).
    The proposed regulations provide that employee includes a former 
employee. Thus, an individual eligible to enroll in retiree coverage 
under a group health plan that is an eligible employer-sponsored plan 
as defined in section 5000A(f)(2) is treated as eligible to purchase 
minimum essential coverage

[[Page 7320]]

under an eligible employer-sponsored plan under the same rules 
applicable to current employees. The treatment of former employees is 
consistent with other provisions of the Code, the PHSA, and ERISA that 
apply to group health plans of employers.
    In addition, the proposed regulations provide that an individual 
eligible to enroll in continuation coverage required under Federal law, 
such as COBRA, or a comparable State law is eligible to purchase 
minimum essential coverage under an eligible employer-sponsored plan 
only if the individual enrolls in the coverage. This treatment of 
former employees eligible for continuation coverage is consistent with 
the rules provided in Sec.  1.36B-2(c)(3)(iv).
B. Required Contribution for Employees Eligible for Coverage Under an 
Employer-Sponsored Plan
    Section 5000A(e)(1)(B)(i) provides that, in the case of an employee 
eligible to purchase minimum essential coverage through an eligible 
employer-sponsored plan, the required contribution is the portion of 
the annualized premium that the individual would pay (without regard to 
whether paid through salary reduction or otherwise) for self-only 
coverage. The proposed regulations clarify that, for an employee 
eligible for coverage under an eligible employer-sponsored plan, the 
required contribution is the portion of the annual premium that the 
employee would pay for the lowest cost self-only coverage.
C. Required Contribution for a Related Individual Eligible for Coverage 
Under an Eligible Employer-Sponsored Plan
    Section 5000A(e)(1)(C) provides that, in the case of a related 
individual eligible to purchase minimum essential coverage under an 
eligible employer-sponsored plan because of the individual's 
relationship with an employee, the related individual's affordability 
determination is made by reference to the employee's required 
contribution. The proposed regulations provide that a related 
individual is 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 section 151 
is properly claimed on the employee's Federal income tax return. For 
example, an employee's spouse is treated as a related individual if the 
spouse files a joint return with the employee and is eligible for 
employer-sponsored coverage only under the plan offered to the 
employee. An individual who is eligible to enroll in an eligible 
employer-sponsored plan by reason of a relationship to an employee, but 
who is not claimed as a dependent by the employee, is not treated as a 
related individual. For purposes of section 5000A, the unclaimed 
dependent's household income is independently determined.
    The proposed regulations clarify that if an employee or related 
individual is eligible to enroll in an eligible employer-sponsored 
plan, any eligibility for other coverage (for example, government 
sponsored minimum essential coverage) is disregarded for purposes of 
the exemption for lack of affordable coverage.
    The proposed regulations further clarify that the required 
contribution for a related individual's coverage is determined by 
reference to the premium for the lowest cost coverage under the 
eligible employer-sponsored plan in which the employee and all related 
individuals who are included in the employee's family and not otherwise 
exempt are eligible to enroll. Thus, the required contribution for a 
spouse and claimed dependents (who are not otherwise exempt) is the 
premium that the employee would pay for the lowest cost coverage 
covering the employee, the spouse, and the claimed dependents. The 
required contribution for self-only coverage under an eligible 
employer-sponsored plan may cost less than 8 percent of household 
income, while the required contribution for family coverage under the 
same employer plan may cost more than 8 percent of household income. In 
such a case, the employee is not exempt under section 5000A(e)(1), 
while the employee's spouse and claimed dependents are exempt.
    Finally, some individuals who are claimed as dependents by a 
taxpayer may not be eligible for coverage under the taxpayer's eligible 
employer-sponsored plan. The affordability of coverage for these 
individuals is determined in the manner that applies to them 
individually. Thus, if a taxpayer is not allowed to enroll a niece who 
is the taxpayer's dependent in the taxpayer's eligible employer-
sponsored plan, the required contribution for the niece is not 
determined by reference to the cost of coverage under the plan. 
Instead, unless the niece is eligible for coverage under another 
eligible employer-sponsored plan, her required contribution is 
determined under the rules applicable to individuals eligible only to 
purchase coverage in the individual market.
ii. Individuals eligible only to purchase coverage in the individual 
market
    Section 5000A(e)(1)(B)(ii) defines the term required contribution 
for an individual eligible only to purchase coverage in the individual 
market. The proposed regulations clarify that, for any individual who 
is not an employee or related individual eligible for minimum essential 
coverage under an eligible employer-sponsored plan, the required 
contribution is the premium for the lowest cost bronze plan available 
in the individual market through the Exchange serving the rating area 
where the individual resides, reduced by the maximum amount of any 
premium tax credit that would be allowable if the individual were 
enrolled in the plan offered through the Exchange.
    As explained in this preamble, under the proposed regulations, both 
the annual premium for the applicable lowest cost bronze plan and the 
credit allowable under section 36B are determined by reference to 
coverage for those members of the individual's family who are not 
otherwise exempt (nonexempt family). Consequently, the required 
contribution is the same for all members of a nonexempt family who are 
ineligible for coverage under an eligible employer-sponsored plan.
A. Premium for the Lowest Cost Bronze Plan
    The proposed regulations provide that the lowest cost bronze plan 
is the lowest cost bronze-level qualified health plan available in the 
Exchange serving the rating area that would cover all members of the 
nonexempt family who are ineligible for coverage under an eligible 
employer-sponsored plan. Accordingly, the premium for the lowest cost 
bronze plan is the same for all individuals in a nonexempt family.
    The proposed regulations provide special rules for determining the 
premium for the lowest cost bronze plan if the Exchange does not offer 
a bronze-level plan that would cover the taxpayer's entire nonexempt 
family. The proposed regulations provide that, in general, the premium 
for the lowest cost bronze plan is the sum of the premiums for the 
lowest cost bronze plans that would, taken together, cover the 
taxpayer's nonexempt family (for example, for an uncle and two adult 
dependent nieces, a self-only plan for the uncle and a two-adult or 
family plan for the nieces). Alternatively, the proposed regulations 
provide that a taxpayer may elect to use the premium for the lowest 
cost bronze plan that would apply to a set of individuals that have the 
same characteristics as the

[[Page 7321]]

taxpayer's nonexempt family (such as one adult plus children) as if one 
plan covered all members of the taxpayer's shared responsibility 
family.
B. Credit Allowable Under Section 36B
    In general, a premium tax credit is allowable under section 36B for 
any coverage month (within the meaning of Sec.  1.36B-3(c)) that occurs 
in a taxable year in which a taxpayer is an applicable taxpayer (within 
the meaning of Sec.  1.36B-2(b)). A month is not a coverage month for 
an individual, and thus no premium tax credit is allowable for the 
individual's coverage, if the individual is eligible for minimum 
essential coverage other than coverage offered in the individual market 
for that month. In general, an applicable taxpayer is a taxpayer whose 
household income for the taxable year is between 100 percent and 400 
percent of the Federal poverty line for the taxpayer's family size.
    Section 36B(b)(1) provides that the premium tax credit for any 
taxable year is the sum of the premium assistance amounts with respect 
to all coverage months occurring in the taxable year. Under section 
36B(b)(2), for any coverage month, the premium assistance amount is the 
lesser of the following: (1) The monthly premiums for the month for one 
or more qualified health plans in which the taxpayer or a member of the 
taxpayer's family (coverage family) is enrolled through the Exchange 
serving the rating area where they reside or (2) any excess of the 
adjusted monthly premium for the month for the applicable second lowest 
cost silver plan for the taxpayer over an amount equal to \1/2\ of the 
product of the applicable percentage and the taxpayer's household 
income for the taxpayer. Section 36B, therefore, calculates the 
allowable credit by treating the family as a single, aggregated unit.
    The proposed regulations take a similar family-unit approach to 
determine the affordability of Exchange coverage. The proposed 
regulations provide that, for purposes of section 5000A, each 
individual in the taxpayer's nonexempt family is treated as having 
enrolled in a qualified health plan through the appropriate Exchange 
for purposes of determining the credit allowable under section 36B. 
Therefore, for each individual, a month is treated as a coverage month 
if the individual is ineligible for minimum essential coverage other 
than coverage in the individual market for the month. The proposed 
regulations further provide that the premium assistance amount for the 
month is the amount that would be allowable under the rules of section 
36B if each member of the individual's nonexempt family enrolled in a 
qualified health plan through an Exchange. Accordingly, for a month 
that an individual included in a nonexempt family is eligible for 
minimum essential coverage other than coverage in the individual 
market, the month is not a coverage month for that individual, the 
individual is not included in the coverage family for purposes of 
section 36B, and no premium assistance amount is allowable for the 
coverage attributable to such individual.
f. Household Income Below Return Filing Threshold
    Section 5000A(e)(2) provides that an individual is exempt for a 
month in a calendar year if the individual's household income for the 
taxable year is less than the amount of gross income specified in 
section 6012(a)(1) with respect to the taxpayer. The proposed 
regulations refer to ``the amount of gross income specified in section 
6012(a)(1) with respect to the taxpayer'' (that is, the minimum amount 
of gross income that triggers the individual's requirement to file a 
Federal income tax return under that section) as the applicable filing 
threshold.
    The proposed regulations further clarify that, for any individual 
who is properly claimed as a dependent, the applicable filing threshold 
is that of the taxpayer who claims the individual as a dependent. 
Therefore, if a taxpayer is exempt under section 5000A(e)(2), any 
individual the taxpayer properly claims as a dependent also is exempt 
as well. The Treasury Department and the IRS recognize that some 
taxpayers who do not have sufficient gross income to trigger a return 
filing requirement nevertheless may have household income that exceeds 
the return filing threshold. For example, if a taxpayer whose gross 
income is below the applicable filing threshold files a Federal income 
tax return in order to claim certain tax benefits (such as the earned 
income credit or additional child tax credit) and claims a dependent 
whose gross income triggers a return filing requirement, the household 
income (which combines the taxpayer's and the dependent's income) may 
exceed the filing threshold. The Department of Health and Human 
Services is proposing rules providing that individuals in this 
circumstance may qualify for a hardship exemption. Patient Protection 
and Affordable Care Act; Exchange Functions: Eligibility for 
Exemptions; Minimum Essential Coverage Provisions (to be codified at 45 
CFR 155.605(g)). The Treasury Department and the IRS are considering 
additional methods of accommodating individuals in these circumstances.
g. Short Coverage Gap
    The proposed regulations clarify that a continuous period without 
minimum essential coverage is determined by reference to calendar 
months (for example, January or February) in conjunction with the 
coverage rule in Sec.  1.5000A-1(b). Therefore, if an individual is 
enrolled in and entitled to receive benefits under a plan identified as 
minimum essential coverage for one day in a calendar month, the month 
is not included in the continuous period when determining the 
application of the short coverage gap exemption. As a result, the 
proposed regulations provide that an individual qualifies for the short 
coverage gap exemption if the continuous period without minimum 
essential coverage is less than three full calendar months and is the 
first short coverage gap in the individual's taxable year.
i. Coverage Gap Straddling Multiple Taxable Years
    In general, section 5000A(e)(4)(B)(i) provides that the length of a 
continuous period is determined without regard to the calendar years in 
which months in the period occur. However, whether an individual had 
coverage during the last month, or the last two months, of a taxable 
year affects the determination of whether any gap in coverage that the 
individual experiences in the first month, or the first and second 
months, of the following taxable year qualifies as a short coverage 
gap. Accordingly, if a calendar year taxpayer has a continuous period 
of 3 months or longer that starts in November or December of one 
taxable year and ends in the next taxable year, then January and any 
ensuing months of the second taxable year that are included in the 
period are ineligible for the short coverage gap exemption.
    Section 5000A(e)(4) expressly authorizes the Secretary to prescribe 
rules for the collection of the shared responsibility payment in cases 
in which continuous periods include months in more than one taxable 
year. Each Federal income tax return covers a single taxable year and 
requires the taxpayer to account for coverage of the taxpayer's shared 
responsibility family during the months included in that taxable year. 
To require a taxpayer to take into account months in the following 
taxable year may delay or impede the taxpayer's ability to file a 
timely Federal income tax return. Accordingly, to provide taxpayers 
with certainty when filing their Federal income tax returns, the 
proposed

[[Page 7322]]

regulations provide that an individual who lacks minimum essential 
coverage for a period no longer than the last two months of a taxable 
year will be deemed to have a short coverage gap exemption for those 
months if the short coverage gap is the first to occur in that taxable 
year, without regard to whether the individual is covered during the 
first months of the following taxable year.
ii. Coordination With Other Exemptions
    The proposed regulations clarify that, for purposes of determining 
whether a short coverage gap applies, an individual is treated as 
covered under minimum essential coverage for a month in which the 
individual qualifies for a section 5000A exemption (other than the 
short coverage gap exemption). Therefore, the short coverage exemption 
applies to a month in which no other section 5000A exemption applies, 
and a month in which an individual is otherwise exempt is not taken 
into account in determining the length of the continuous period without 
coverage.
h. Claiming Section 5000A Exemptions
    The exemptions for members of recognized religious sects or 
divisions and for individuals who have suffered a hardship are 
available only to individuals who have been certified as meeting the 
relevant criteria by the Exchange serving the rating area where the 
individuals seeking the exemption reside.
    In addition, Exchanges will provide, upon request, exemption 
certifications for members of health care sharing ministries, 
incarcerated individuals, and members of Indian tribes. If an 
individual receives an exemption certification from an Exchange, the 
taxpayer who is responsible for accounting for that individual's 
coverage must provide information about the certification on the 
taxpayer's Federal income tax return. Alternatively, a taxpayer may 
claim any of these exemptions on the taxpayer's Federal income tax 
return for the taxable year.
    Finally, the income-based exemptions for individuals who lack 
affordable coverage or have household income below the applicable 
income tax return filing threshold and the exemption for short coverage 
gaps may be claimed only on the individual's Federal income tax return 
for the applicable year. Thus, an individual claiming the affordability 
exemption under section 5000A(e)(1) for part or all of a taxable year 
will do so on the Federal income tax return that reports the 
individual's income establishing qualification for the exemption. An 
individual who has household income below the applicable Federal income 
tax return filing threshold and files a Federal income tax return may 
claim the exemption under section 5000A(e)(2) on the return. However, 
an individual who has household income below the applicable Federal 
income tax return filing threshold is not required to file a Federal 
income tax return to claim the exemption under section 5000A(e)(2).
    Pursuant to section 6001, taxpayers are required to maintain all 
records and information substantiating any claim for exemption on the 
taxpayer's Federal income tax return, regardless of whether the 
individual was certified by an Exchange as qualifying for an exemption 
or first claimed the exemption on a Federal income tax return.

4. Computation of Shared Responsibility Payment

    Under section 5000A(b)(1) and 5000A(b)(3)(A), a taxpayer is liable 
for the shared responsibility payment with respect to any nonexempt 
individual who is included in the taxpayer's shared responsibility 
family. The maximum annual amount of the shared responsibility payment 
for a taxpayer is the national average premium for the bronze level 
plan available through Exchanges that provides coverage for the 
applicable family size involved. The proposed regulations clarify that 
the applicable family size involved for purposes of identifying the 
appropriate bronze level plan includes only the nonexempt members of 
the taxpayer's shared responsibility family who do not have minimum 
essential coverage.
    Under section 5000A(c), the annual amount of the shared 
responsibility payment is the lesser of the applicable national average 
bronze plan premium or the sum of the monthly penalty amounts. The 
monthly penalty amount may vary month to month because of changes in 
the composition of the taxpayer's shared responsibility family. To 
provide a meaningful value with which the sum of the monthly penalty 
amounts are compared, the proposed regulations provide that the 
applicable national average bronze plan premium must similarly be 
determined for each month and then aggregated for comparison with the 
sum of the monthly penalty amounts. Consequently, the applicable 
national average bronze plan premium may vary from month to month 
during the year to account for changes in the taxpayer's shared 
responsibility family.

5. Procedure and Administration

a. Inclusion With Federal Income Tax Return
    Section 5000A(b)(2) provides that the shared responsibility payment 
for a month must be included with a taxpayer's Federal income tax 
return for the taxable year that includes the month. The proposed 
regulations clarify that the time for assessing the shared 
responsibility payment is the same time as that prescribed by section 
6501 for the taxable year including the month for which the taxpayer is 
liable for the payment.
b. Assessment and Collection
    Section 5000A(g)(1) provides that the shared responsibility payment 
is payable upon notice and demand by the Secretary and, except as 
provided in section 5000A(g)(2), is assessed and collected in the same 
manner as an assessable penalty under subchapter B of chapter 68 of the 
Code (sections 6671 through 6725). The proposed regulations clarify 
that the shared responsibility payment is not subject to deficiency 
procedures of subchapter B of chapter 63 of the Code. In addition, the 
proposed regulations clarify that interest on the shared responsibility 
payment accrues in accordance with the rules in section 6601. The 
proposed regulations further provide that the Secretary may offset any 
liability for the shared responsibility payment against any overpayment 
due the taxpayer, in accordance with section 6402(a).

Applicability Date

    These regulations are proposed to apply for months beginning after 
December 31, 2013.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866, as supplemented by Executive Order 13563. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to the proposed regulations. Pursuant to the Regulatory 
Flexibility Act (RFA) (5 U.S.C. chapter 6), it is hereby certified that 
the proposed regulations will not have a significant economic impact on 
a substantial number of small entities. The applicability of the 
proposed regulations is limited to individuals, who are not small 
entities as defined by the RFA (5 U.S.C. 601). Accordingly, the RFA 
does not apply. Therefore, a regulatory flexibility analysis is not

[[Page 7323]]

required. Pursuant to section 7805(f) of the Code, the proposed 
regulations have been submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comment on its impact on small 
business.

Comments and Public Hearing

    Before the proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ``Addresses'' 
heading. The Treasury Department and the IRS request comments on all 
aspects of the proposed rules. All comments will be available at 
www.regulations.gov or upon request.
    A public hearing has been scheduled for May 29, 2013, beginning at 
10:00 a.m., in the Auditorium, Internal Revenue Building, 1111 
Constitution Avenue NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of Sec.  601.601(a)(3) of this chapter apply to the 
hearing. Persons who wish to present oral comments at the hearing must 
submit electronic or written comments, and an outline of the topics to 
be discussed and the time to be devoted to each topic (signed original 
and eight (8) copies) by May 3, 2013. A period of 10 minutes will be 
allotted to each person for making comments. An agenda showing the 
scheduling of the speakers will be prepared after the deadline for 
receiving outlines has passed. Copies of the agenda will be available 
free of charge at the hearing.

Drafting Information

    The principal authors of the proposed regulations are William L. 
Candler and Sue-Jean Kim, Office of the Associate Chief Counsel (Income 
Tax & Accounting). Other personnel from the Treasury Department and the 
IRS participated in the development of the regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended to read as 
follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805* * *
    Section 1.5000A-4 also issued under 26 U.S.C. 5000A(e)(4).

0
Par 2. Sections 1.5000A-0 through 1.5000A-5 are added to read as 
follows:


Sec.  1.5000A-0  Table of contents.

    This section lists the captions contained in Sec. Sec.  1.5000A-1 
through 1.5000A-5.
Sec.  1.5000A-1 Maintenance of minimum essential coverage and 
liability for the shared responsibility payment.
    (a) In general.
    (b) Coverage under minimum essential coverage.
    (1) In general.
    (2) Special rule for United States citizens or residents 
residing outside the United States or residents of territories.
    (c) Liability for shared responsibility payment.
    (1) In general.
    (2) Liability for dependents.
    (i) In general.
    (ii) Special rules for dependents adopted or placed in foster 
care during the taxable year.
    (A) Taxpayers adopting an individual.
    (B) Taxpayers placing an individual for adoption.
    (C) Examples.
    (3) Liability of individuals filing a joint return.
    (d) Definitions.
    (1) Affordable Care Act.
    (2) Qualified health plan.
    (3) Exchange.
    (4) Rating area.
    (5) Shared responsibility family.
    (6) Family.
    (7) Household income.
    (i) In general.
    (ii) Modified adjusted gross income.
    (8) Self-only coverage.
    (9) Family coverage.
    (10) Employee.
    (11) Month.
Sec.  1.5000A-2 Minimum essential coverage.
    (a) In general.
    (b) Government sponsored program.
    (c) Eligible employer-sponsored plan.
    (1) In general.
    (2) Group health plan.
    (3) Group health insurance coverage.
    (4) Large and small group market.
    (5) Government sponsored program not treated as eligible 
employer-sponsored plan.
    (d) Plan in the individual market.
    (e) Grandfathered health plan.
    (f) Other health benefits coverage.
    (g) Excepted benefits.
Sec.  1.5000A-3 Exempt individuals.
    (a) Members of recognized religious sects.
    (1) In general.
    (2) Exemption certification.
    (b) Member of health care sharing ministries.
    (1) In general.
    (2) Health care sharing ministry.
    (c) Exempt noncitizens.
    (1) In general.
    (2) Exempt noncitizens.
    (d) Incarcerated individuals.
    (1) In general.
    (2) Incarcerated.
    (e) Individuals with no affordable coverage.
    (1) In general.
    (2) Required contribution percentage.
    (i) In general.
    (ii) Indexing.
    (iii) Plan year.
    (3) Individuals eligible for coverage under eligible employer-
sponsored plans.
    (i) Eligibility.
    (A) In general.
    (B) Special rule for continuation coverage.
    (ii) Required contribution for individuals eligible for coverage 
under an eligible employer-sponsored plan.
    (A) Employees.
    (B) Individuals related to employees.
    (C) Required contribution for part-year period.
    (D) Examples.
    (4) Individuals ineligible for coverage under eligible employer-
sponsored plans.
    (i) Eligibility for coverage other than an eligible employer-
sponsored plan.
    (ii) Required contribution for individuals ineligible for 
coverage under eligible employer-sponsored plans.
    (A) In general.
    (B) Applicable plan.
    (1) In general.
    (2) Lowest cost bronze plan does not cover all individuals 
included in the taxpayer's nonexempt family.
    (i) In general.
    (ii) Simplified method for applicable plan identification.
    (C) Credit allowable under section 36B.
    (D) Required contribution for part-year period.
    (iii) Examples.
    (f) Household income below filing threshold.
    (1) In general.
    (2) Applicable filing threshold.
    (i) In general.
    (ii) Certain dependents.
    (g) Members of Indian tribes.
    (h) Individuals with hardship exemption certification.
    (1) In general.
    (2) Hardship exemption certification.
    (i) [Reserved]
    (j) Individuals with certain short coverage gaps.
    (1) In general.
    (2) Short coverage gap.
    (i) In general.
    (ii) Coordination with other exemptions.
    (iii) More than one short coverage gap during calendar year.
    (3) Continuous period.
    (i) In general.
    (ii) Continuous period straddling more than one taxable year.

[[Page 7324]]

    (4) Examples.
    (k) Claiming exemptions from the shared responsibility payment.
    (1) Exemptions requiring certification by an Exchange.
    (2) Exemptions that may be certified by an Exchange or claimed 
on a Federal income tax return.
    (i) Exemption certified by an Exchange.
    (ii) Exemption claimed on a Federal income tax return.
    (3) Exemptions that are claimed on Federal income tax returns.
Sec.  1.5000A-4 Computation of shared responsibility payment.
    (a) In general.
    (b) Monthly penalty amount.
    (1) In general.
    (2) Flat dollar amount.
    (i) In general.
    (ii) Applicable dollar amount.
    (iii) Special applicable dollar amount for individuals under age 
18.
    (iv) Indexing of applicable dollar amount.
    (3) Excess income amount.
    (i) In general.
    (ii) Income percentage.
    (c) Monthly national average bronze plan premium.
    (d) Examples.
Sec.  1.5000A-5 Administration and procedure.
    (a) In general.
    (b) Special rules.
    (1) Waiver of criminal penalties.
    (2) Limitations on liens and levies.
    (3) Authority to offset against overpayment.
    (c) Effective/applicability date.


Sec.  1.5000A-1  Maintenance of minimum essential coverage and 
liability for the shared responsibility payment.

    (a) In general. For each month during the taxable year, a nonexempt 
individual must have minimum essential coverage or pay the shared 
responsibility payment. For a month, a nonexempt individual is an 
individual in existence for the entire month who is not an exempt 
individual described in Sec.  1.5000A-3.
    (b) Coverage under minimum essential coverage--(1) In general. An 
individual has minimum essential coverage for a month in which the 
individual is enrolled in and entitled to receive benefits under a 
program or plan identified as minimum essential coverage in Sec.  
1.5000A-2 for at least one day in the month.
    (2) Special rule for United States citizens or residents residing 
outside the United States or residents of territories. An individual is 
treated as having minimum essential coverage for a month--
    (i) If the month occurs during any period described in section 
911(d)(1)(A) or section 911(d)(1)(B) that is applicable to the 
individual; or
    (ii) If, for the month, the individual is a bona fide resident of a 
possession of the United States (as determined under section 937(a)).
    (c) Liability for shared responsibility payment--(1) In general. A 
taxpayer is liable for the shared responsibility payment for a month 
for which--
    (i) The taxpayer is a nonexempt individual without minimum 
essential coverage; or
    (ii) A nonexempt individual for whom the taxpayer is liable under 
paragraph (c)(2) or (c)(3) of this section does not have minimum 
essential coverage.
    (2) Liability for dependents--(i) In general. For a month when a 
nonexempt individual does not have minimum essential coverage, if the 
nonexempt individual is a dependent (as defined in section 152) of 
another individual for the other individual's taxable year including 
that month, the other individual is liable for the shared 
responsibility payment attributable to the dependent's lack of 
coverage. An individual is a dependent of a taxpayer for a taxable year 
if the individual satisfies the definition of dependent under section 
152, regardless of whether the taxpayer claims the individual as a 
dependent on a Federal income tax return for the taxable year. If an 
individual may be claimed as a dependent by more than one taxpayer in 
the same calendar year, the taxpayer who properly claims the individual 
as a dependent for the taxable year is liable for the shared 
responsibility payment attributable to the individual. If more than one 
taxpayer may claim an individual as a dependent in the same calendar 
year but no one claims the individual as a dependent, the taxpayer with 
priority under the rules of section 152 to claim the individual as a 
dependent is liable for the shared responsibility payment for the 
individual.
    (ii) Special rules for dependents adopted or placed in foster care 
during the taxable year--(A) Taxpayers adopting an individual. If a 
taxpayer adopts a nonexempt dependent (or accepts a nonexempt dependent 
who is an eligible foster child as defined in section 152(f)(1)(C)) 
during the taxable year and is otherwise liable for a nonexempt 
dependent under paragraph (c)(2)(i) of this section, the taxpayer is 
liable under paragraph (c)(2)(i) of this section for the nonexempt 
dependent only for the full months in the taxable year that follow the 
month in which the adoption or acceptance occurs.
    (B) Taxpayers placing an individual for adoption. If a taxpayer who 
is otherwise liable for a nonexempt dependent under paragraph (c)(2)(i) 
of this section places (or, by operation of law, must place) the 
nonexempt dependent for adoption or foster care during the taxable 
year, the taxpayer is liable under paragraph (c)(2)(i) of this section 
for the nonexempt dependent only for the full months in the taxable 
year that precede the month in which the adoption or foster care 
placement occurs.
    (C) Examples. The following examples illustrate the provisions of 
this paragraph (c)(2)(ii). In each example the taxpayer's taxable year 
is a calendar year.

    Example 1. Taxpayers adopting a child. (i) E and F, married 
individuals filing a joint return, initiate proceedings for the 
legal adoption of a 2-year old child, G, in January 2016. On May 15, 
2016, G becomes the adopted child (within the meaning of section 
152(f)(1)(B)) of E and F, and resides with them for the remainder of 
2016. G meets all requirements under section 152 to be E and F's 
dependent for 2016. Prior to the adoption, G resides with H, an 
unmarried individual, with H providing all of G's support.
    (ii) Under paragraph (c)(2) of this section, E and F are not 
liable for a shared responsibility payment attributable to G for 
January through May of 2016, but are liable for a shared 
responsibility payment attributable to G, if any, for June through 
December of 2016. H is not liable for a shared responsibility 
payment attributable to G for any month in 2016, because G is not 
H's dependent for 2016 under section 152.
    Example 2. Taxpayers placing a child for adoption. (i) The facts 
are the same as Example 1, except the legal adoption occurs on 
August 15, 2016. G meets all requirements under section 152 to be 
H's dependent for 2016.
    (ii) Under paragraph (c)(2) of this section, H is liable for a 
shared responsibility payment attributable to G, if any, for January 
through July of 2016, but is not liable for a shared responsibility 
payment attributable to G for August through December of 2016. E and 
F are not liable for a shared responsibility payment attributable to 
G for any month in 2016, because G is not E and F's dependent for 
2016 under section 152.

    (3) Liability of individuals filing a joint return. Married 
individuals (within the meaning of section 7703) who file a joint 
return for a taxable year are jointly liable for any shared 
responsibility payment for a month included in the taxable year.
    (d) Definitions. The definitions in this paragraph (d) apply to 
this section and Sec. Sec.  1.5000A-2 through 1.5000A-5.
    (1) Affordable Care Act. Affordable Care Act refers to the Patient 
Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 
(2010)), and the Health Care and Education Reconciliation Act of 2010, 
Public Law 111-152 (124 Stat. 1029 (2010)), as amended.
    (2) Qualified health plan. Qualified health plan has the same 
meaning as in section 1301(a) of the Affordable Care Act (42 U.S.C. 
18021(a)).

[[Page 7325]]

    (3) Exchange. Exchange has the same meaning as in 45 CFR 155.20.
    (4) Rating area. Rating area has the same meaning as in Sec.  
1.38B-1(n).
    (5) Shared responsibility family. Shared responsibility family 
means, for a month, all nonexempt individuals for whom the taxpayer 
(and the taxpayer's spouse, if the taxpayer is married and files a 
joint return with the spouse) is liable for the shared responsibility 
payment under paragraph (c) of this section.
    (6) Family. A taxpayer's family means the individuals for whom the 
taxpayer properly claims a deduction for a personal exemption under 
section 151 for the taxable year.
    (7) Household income--(i) In general. Household income means the 
sum of--
    (A) A taxpayer's modified adjusted gross income; and
    (B) The aggregate modified adjusted gross income of all other 
individuals who--
    (1) Are included in the taxpayer's family under paragraph (d)(6) of 
this section; and
    (2) Are required to file a Federal income tax return for the 
taxable year (determined without regard to the exception under section 
1(g)(7) to the requirement to file a Federal income tax return).
    (ii) Modified adjusted gross income. Modified adjusted gross income 
means adjusted gross income (within the meaning of section 62) 
increased by--
    (A) Amounts excluded from gross income under section 911; and
    (B) Tax-exempt interest the taxpayer receives or accrues during the 
taxable year.
    (8) Self-only coverage. Self-only coverage means health insurance 
that covers one individual.
    (9) Family coverage. Family coverage means health insurance that 
covers more than one individual.
    (10) Employee. Employee includes former employees.
    (11) Month. Month means calendar month.


Sec.  1.5000A-2  Minimum essential coverage.

    (a) In general. Minimum essential coverage means coverage under a 
government sponsored program (described in paragraph (b) of this 
section), an eligible employer-sponsored plan (described in paragraph 
(c) of this section), a plan in the individual market (described in 
paragraph (d) of this section), a grandfathered health plan (described 
in paragraph (e) of this section), or other health benefits coverage 
(described in paragraph (f) of this section). Minimum essential 
coverage does not include coverage described in paragraph (g) of this 
section. All terms defined in this section apply for purposes of this 
section and Sec.  1.5000A-1 and Sec. Sec.  1.5000A-3 through 1.5000A-5.
    (b) Government sponsored program. Government sponsored program 
means any of the following:
    (1) The Medicare program under part A of title XVIII of the Social 
Security Act (42 U.S.C. 1395c and following sections);
    (2) The Medicaid program under title XIX of the Social Security Act 
(42 U.S.C. 1396 and following sections) other than--
    (i) Optional coverage of family planning services under section 
1902(a)(10)(A)(ii)(XXI) of the Social Security Act (42 U.S.C. 
1396a(a)(10)(A)(ii)(XXI));
    (ii) Optional coverage of tuberculosis-related services under 
section 1902(a)(10)(A)(ii)(XII) (42 U.S.C. 1396a(a)(10)(A)(ii)(XII));
    (iii) Coverage of pregnancy-related services under section 
1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) (42 U.S.C. 
1396a(a)(10)(A)(i)(IV), (a)(10)(A)(ii)(IX)); or
    (iv) Coverage of medical emergency services under 8 U.S.C. 
1611(b)(1)(A), as authorized by section 1903(v) of the Social Security 
Act (42 U.S.C. 1396b(v)).
    (3) The Children's Health Insurance Program (CHIP) under title XXI 
of the Social Security Act (42 U.S.C 1397aa and following sections);
    (4) Medical coverage under chapter 55 of title 10, U.S.C., 
including coverage under the TRICARE program;
    (5) The following health care programs under chapter 17 or 18 of 
title 38, U.S.C.:
    (i) The medical benefits package authorized for eligible veterans 
under 38 U.S.C. 1710 and 38 U.S.C. 1705;
    (ii) The Civilian Health and Medical Program of the Department of 
Veterans Affairs (CHAMPVA) authorized under 38 U.S.C. 1781; and
    (iii) The comprehensive health care program authorized under 38 
U.S.C. 1803 and 38 U.S.C. 1821 for certain children of Vietnam Veterans 
and Veterans of covered service in Korea who are suffering from spina 
bifida.
    (6) A health plan under section 2504(e) of title 22, U.S.C. 
(relating to Peace Corps volunteers); and
    (7) The Nonappropriated Fund Health Benefits Program of the 
Department of Defense, established under section 349 of the National 
Defense authorization Act for Fiscal Year 1995 (Public Law No. 103-337; 
10 U.S.C. 1587 note).
    (c) Eligible employer-sponsored plan--(1) In general. Eligible 
employer-sponsored plan means, with respect to any employee, a group 
health plan (whether an insured group health plan or a self-insured 
group health plan) or group health insurance coverage offered by an 
employer to the employee, which is--
    (i) A governmental plan (within the meaning of section 2791(d)(8) 
of the Public Health Service Act (42 U.S.C. 300gg-91(d)(8)));
    (ii) Any other plan or coverage offered in the small or large group 
market within a State;
    (iii) A grandfathered health plan (within the meaning of paragraph 
(e) of this section) offered in a group market.
    (2) Group health plan. Group health plan has the same meaning as in 
section 2791(a) of the Public Health Service Act (42 U.S.C. 300gg-
91(a)(1)).
    (3) Group health insurance coverage. Group health insurance 
coverage has the same meaning as in section 2791(b) of the Public 
Health Service Act (42 U.S.C. 300gg-91(b)).
    (4) Large and small group market. Large group market and small 
group market have the same meanings as in section 1304(a)(3) of the 
Affordable Care Act (42 U.S.C. 18024(a)(3)).
    (5) Government sponsored program not treated as eligible employer-
sponsored plan. A government sponsored program described in paragraph 
(b) of this section is not an eligible employer-sponsored plan.
    (d) Plan in the individual market. Plan in the individual market 
means health insurance coverage offered to individuals not in 
connection with a group health plan, including a qualified health plan 
offered by an Exchange.
    (e) Grandfathered health plan. Grandfathered health plan means any 
group health plan or group health insurance coverage to which section 
1251 of the Affordable Care Act (42 U.S.C.18011) applies.
    (f) Other health benefits coverage. Minimum essential coverage 
includes any plan or arrangement recognized by the Secretary of Health 
and Human Services as minimum essential coverage for purposes of 
section 5000A under 45 CFR 156.600 and following sections.
    (g) Excepted benefits. Minimum essential coverage does not include 
any health insurance coverage that consists of excepted benefits that 
are described in section 2791(c)(1), (c)(2), (c)(3), or (c)(4) of the 
Public Health Service Act (42 U.S.C. 300gg-91(c)).


Sec.  1.5000A-3  Exempt individuals.

    (a) Members of recognized religious sects--(1) In general. An 
individual is an exempt individual for a month that includes a day on 
which the individual

[[Page 7326]]

has in effect a religious conscience exemption certification described 
in paragraph (a)(2) of this section.
    (2) Exemption certification. A religious conscience exemption 
certification is issued by an Exchange in accordance with the 
requirements of section 1311(d)(4)(H) of the Affordable Care Act (42 
U.S.C. 18031(d)(4)(H)) and 45 CFR 155.605(c), 45 CFR 155.615(b) and 
certifies that an individual is--
    (i) A member of a recognized religious sect or division thereof 
that is described in section 1402(g)(1); and
    (ii) An adherent of established tenets or teachings of the sect or 
division as described in that section.
    (b) Member of health care sharing ministries--(1) In general. An 
individual is an exempt individual for a month that includes a day on 
which the individual is a member of a health care sharing ministry.
    (2) Health care sharing ministry. For purposes of this section, 
health care sharing ministry means an organization--
    (i) That is described in section 501(c)(3) and is exempt from tax 
under section 501(a);
    (ii) Members of which share a common set of ethical or religious 
beliefs and share medical expenses among themselves in accordance with 
those beliefs and without regard to the State in which a member resides 
or is employed;
    (iii) Members of which retain membership even after they develop a 
medical condition;
    (iv) That (or a predecessor of which) has been in existence at all 
times since December 31, 1999;
    (v) Members of which have shared medical expenses continuously and 
without interruption since at least December 31, 1999; and
    (vi) That conducts an annual audit performed by an independent 
certified public accounting firm in accordance with generally accepted 
accounting principles and makes the annual audit report available to 
the public upon request.
    (c) Exempt noncitizens--(1) In general. An individual is an exempt 
individual for a month that the individual is an exempt noncitizen.
    (2) Exempt noncitizens. For purposes of this section, an individual 
is an exempt noncitizen for a month if the individual--
    (i) Is not a U.S. citizen or U.S. national for any day during the 
month; and
    (ii) Is either--
    (A) A nonresident alien (within the meaning of section 
7701(b)(1)(B)) for the taxable year that includes the month; or
    (B) An individual who is not lawfully present (within the meaning 
of 45 CFR 155.20) in the United States on any day in the month.
    (d) Incarcerated individuals--(1) In general. An individual is an 
exempt individual for a month that includes a day on which the 
individual is incarcerated.
    (2) Incarcerated. For purposes of this section, the term 
incarcerated means confined, after the disposition of charges, in a 
jail, prison, or similar penal institution or correctional facility.
    (e) Individuals with no affordable coverage--(1) In general. An 
individual is an exempt individual for a month in which the individual 
lacks affordable coverage. For purposes of this paragraph (e), an 
individual lacks affordable coverage in a month if the individual's 
required contribution (determined on an annual basis) for minimum 
essential coverage for the month exceeds the required contribution 
percentage (as defined in paragraph (e)(2) of this section) of the 
individual's household income. For purposes of this paragraph (e), 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.
    (2) Required contribution percentage--(i) In general. Except as 
provided in paragraph (e)(2)(ii) of this section, the required 
contribution percentage is 8 percent.
    (ii) Indexing. For plan years beginning in any calendar year after 
2014, the required contribution percentage is the percentage determined 
by the Department of Health and Human Services that reflects the excess 
of the rate of premium growth between the preceding calendar year and 
2013 over the rate of income growth for the period.
    (iii) Plan year. For purposes of this paragraph (e), plan year 
means the eligible employer-sponsored plan's regular 12-month coverage 
period (or the remainder of a 12-month coverage period for a new 
employee or an individual who enrolls during a special enrollment 
period).
    (3) Individuals eligible for coverage under eligible employer-
sponsored plans--(i) Eligibility--(A) In general. Except as provided in 
paragraph (e)(3)(i)(B) of this section, an employee or related 
individual (as defined in paragraph (e)(3)(ii)(B) of this section) 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 or special enrollment period, regardless of whether the 
employee or related individual is eligible for any other type of 
minimum essential coverage. For purposes of this paragraph (e)(3), an 
employee eligible for coverage under an eligible employer-sponsored 
plan offered by the employee's employer is not treated as eligible as a 
related individual for coverage under an eligible employer-sponsored 
plan (for example, an eligible employer-sponsored plan offered by the 
employer of the employee's spouse) for any month included in the plan 
year of the eligible employer-sponsored plan offered by the employee's 
employer.
    (B) Special rule for continuation coverage. An individual who may 
enroll in continuation coverage required under Federal law or a State 
law that provides comparable continuation coverage is eligible for 
coverage under an eligible employer-sponsored plan only if the 
individual enrolls in the coverage.
    (ii) Required contribution for individuals eligible for coverage 
under an eligible employer-sponsored plan--(A) Employees. In the case 
of an employee who is eligible to purchase coverage under an eligible 
employer-sponsored plan sponsored by the employee's employer, the 
required contribution is the portion of the annual premium that the 
employee would pay (whether though salary reduction or otherwise) for 
the lowest cost self-only coverage.
    (B) Individuals related to employees. In the case of 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 section 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 would cover the employee and all 
related individuals who are included in the employee's family and are 
not otherwise exempt under Sec.  1.5000A-3.
    (C) Required contribution for part-year period. For each individual 
described in paragraph (e)(3)(ii)(A) or (e)(3)(ii)(B) of this section, 
affordability under paragraph (e)(3) of this section 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 taxable years of the individual. Coverage under an eligible 
employer-sponsored plan is affordable for a part-year period if the 
annualized required contribution for self-only coverage (in

[[Page 7327]]

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 of the individual's household income 
for the taxable year. The annualized required contribution is the 
required contribution determined under paragraph (e)(3)(ii)(A) or 
(e)(3)(ii)(B) of this section for the part-year period times a 
fraction, the numerator of which is 12 and the denominator of which is 
the number of months in the part-year period during the individual's 
taxable year. Only full calendar months are included in the computation 
under this paragraph (e)(3)(ii)(C).
    (D) Examples. The following examples illustrate the application of 
this paragraph (e)(3). Unless stated otherwise, in each example, each 
individual's taxable year is a calendar year, the individual is 
ineligible for any other exemptions described in this section for a 
month, the rate of premium growth has not exceeded the rate of income 
growth since 2013, and the individual's employer offers a single plan 
that uses a calendar plan year and is an eligible employer-sponsored 
plan as described in Sec.  1.5000A-2(c).

    Example 1. Unmarried employee with no dependents. Taxpayer A is 
an unmarried individual with no dependents. In November 2015, A is 
eligible to enroll in self-only coverage under a plan offered by A's 
employer for calendar year 2016. If A enrolls in the coverage, A is 
required to pay $5,000 of the total annual premium. In 2016, A's 
household income is $60,000. Under paragraph (e)(3)(ii)(A) of this 
section, A's required contribution is $5,000, the portion of the 
annual premium A pays for self-only coverage. Under paragraph (e)(1) 
of this section, A lacks affordable coverage for 2016 because A's 
required contribution ($5,000) is greater than 8 percent of A's 
household income ($4,800).

    Example 2.  Married employee with dependents. Taxpayers B and C 
are married and file a joint return for 2016. B and C have two 
children, D and E. In November 2015, B is eligible to enroll in 
self-only coverage under a plan offered by B's employer for calendar 
year 2016 at a cost of $5,000 to B. C, D, and E are eligible to 
enroll in family coverage under the same plan for 2016 at a cost of 
$20,000 to B. B, C, D, and E's household income is $90,000. Under 
paragraph (e)(3)(ii)(A) of this section, B's required contribution 
is B's share of the cost for self-only coverage, $5,000. Under 
paragraph (e)(1) of this section, B has affordable coverage for 2016 
because B's required contribution ($5,000) does not exceed 8 percent 
of B's household income ($7,200). Under paragraph (e)(3)(ii)(B) of 
this section, the required contribution for C, D, and E is B's share 
of the cost for family coverage, $20,000. Under paragraph (e)(1) of 
this section, C, D, and E lack affordable coverage for 2016 because 
their required contribution ($20,000) exceeds 8 percent of their 
household income ($7,200).

    Example 3.  Plan year is a fiscal year. (i) Taxpayer F is an 
unmarried individual with no dependents. In June 2015, F is eligible 
to enroll in self-only coverage under a plan offered by F's employer 
for the period July 2015 through June 2016 at a cost to F of $4,750. 
In June 2016, F is eligible to enroll in self-only coverage under a 
plan offered by F's employer for the period July 2016 through June 
2017 at a cost to F of $5,000. In 2016, F's household income is 
$60,000.
    (ii) Under paragraph (e)(3)(ii)(C) of this section, F's 
annualized required contribution for the period January 2016 through 
June 2016 is $4,750 ($2,375 paid for premiums in 2016 x 12/6). Under 
paragraph (e)(1) of this section, F has affordable coverage for 
January 2016 through June 2016 because F's annualized required 
contribution ($4,750) does not exceed 8 percent of F's household 
income ($4,800).
    (iii) Under paragraph (e)(3)(ii)(C) of this section, F's 
annualized required contribution for the period July 2016 to 
December 2016 is $5,000 ($2,500 paid for premiums in 2016 x 12/6). 
Under paragraph (e)(1) of this section, F lacks affordable coverage 
for July 2016 through December 2016 because F's annualized required 
contribution ($5,000) exceeds 8 percent of F's household income 
($4,800).

    Example 4. Eligibility for coverage under an eligible employer-
sponsored plan and under government sponsored coverage. Taxpayer G 
is unmarried and has one child, H. In November 2015, H is eligible 
to enroll in family coverage under a plan offered by G's employer 
for 2016. H is also eligible to enroll in the CHIP program for 2016. 
Under paragraph (e)(3)(i) of this section, H is treated as eligible 
for coverage under an eligible employer-sponsored plan for each 
month in 2016, notwithstanding that H is eligible to enroll in 
government sponsored coverage for the same period.

    (4) Individuals ineligible for coverage under eligible employer-
sponsored plans--(i) Eligibility for coverage other than an eligible 
employer-sponsored plan. An individual is treated as ineligible for 
coverage under an eligible employer-sponsored plan for a month that is 
not described in paragraph (e)(3)(i) of this section.
    (ii) Required contribution for individuals ineligible for coverage 
under eligible employer-sponsored plans--(A) In general. In the case of 
an individual who is ineligible for coverage under an eligible 
employer-sponsored plan, the required contribution is the premium for 
the applicable plan, reduced by the maximum amount of any credit 
allowable under section 36B for the taxable year (determined as if the 
individual was covered for the entire taxable year by a qualified 
health plan offered through the Exchange serving the rating area where 
the individual resides).
    (B) Applicable plan--(1) In general. Except as provided in 
paragraph (e)(4)(ii)(B)(2) of this section, applicable plan means the 
single lowest cost bronze plan available in the individual market 
through the Exchange serving the rating area in which the individual 
resides (without regard to whether the individual purchased a qualified 
health plan though the Exchange) that would cover all individuals in 
the individual's nonexempt family. For purposes of this paragraph 
(e)(4), an individual's nonexempt family means the family (as defined 
in Sec.  1.5000A-1(d)(6)) that includes the individual, excluding any 
family members who are otherwise exempt under section 1.5000A-3 or are 
treated as eligible for coverage under an eligible employer-sponsored 
plan under paragraph (e)(3)(i) of this section. The premium for the 
applicable plan takes into account rating factors (for example, an 
individual's age) that an Exchange would use to determine the cost of 
coverage.
    (2) Lowest cost bronze plan does not cover all individuals included 
in the taxpayer's nonexempt family--(i) In general. If the Exchange 
serving the rating area where the individual resides does not offer a 
single bronze plan that would cover all individuals included in the 
individual's nonexempt family, the premium for the applicable plan is 
the sum of the premiums for the lowest cost bronze plans that are 
offered through the Exchanges serving the rating areas where one or 
more of the individuals reside and that would, in the aggregate, cover 
all the individuals in the individual's nonexempt family.
    (ii) Simplified method for applicable plan identification. In lieu 
of the premium for the applicable plan determined under paragraph 
(e)(4)(ii)(B)(2)(i) of this section, a taxpayer may irrevocably elect 
to use the premium for the lowest cost bronze plan offered by the 
Exchange serving the rating area where the individual resides that 
would cover individuals with the characteristics (for example, the 
individuals' ages) of the individuals in the taxpayer's nonexempt 
family. For example, if a taxpayer's nonexempt family includes one 
adult and two children, the taxpayer may elect to use the premium for 
the lowest cost bronze plan that would cover individuals having the 
same characteristics as the adult and the two children in the 
taxpayer's nonexempt family. A taxpayer makes the election by using the 
simplified method described in this paragraph (e)(4)(ii)(B)(2)(ii).
    (C) Credit allowable under section 36B. For purposes of paragraph 
(e)(4)(ii)(A) of this section, credit

[[Page 7328]]

allowable under section 36B means the maximum amount of the credit that 
would be allowable to the individual (or to the taxpayer who can 
properly claim the individual as a dependent) under section 36B if all 
members of the individual's nonexempt family enrolled in a qualified 
health plan through the Exchange serving the rating area where the 
individual resides.
    (D) Required contribution for part-year period. For each individual 
described in paragraph (e)(4)(ii)(A) of this section, affordability 
under paragraph (e)(4) of this section is determined separately for 
each period described in paragraph (e)(4)(ii)(E) of this section that 
is less than a 12-month period. Coverage under a plan is affordable for 
a part-year period if the annualized required contribution for coverage 
under the plan for the part-year period does not exceed the required 
contribution percentage of the individual's household income for the 
taxable year. The annualized required contribution is the required 
contribution determined under paragraph (e)(4)(ii)(A) of this section 
for the part-year period times a fraction, the numerator of which is 12 
and the denominator of which is the number of months in the part-year 
period during the individual's taxable year. Only full calendar months 
are included in the computation under this paragraph (e)(4)(ii)(D).
    (iii) Examples. The following examples illustrate the provisions of 
this paragraph (e)(4). Unless stated otherwise, in each example the 
taxpayer's taxable year is a calendar year, the rate of premium growth 
has not exceeded the rate of income growth since 2013, and the taxpayer 
is ineligible for any of the exemptions described in paragraphs (b) 
through (i) of this section for a month.

    Example 1. Unmarried employee with no dependents. (i) Taxpayer G 
is an unmarried individual with no dependents. G is ineligible to 
enroll in any minimum essential coverage other than coverage in the 
individual market for all months in 2016. The annual premium for the 
lowest cost bronze self-only plan in G's rating area (G's applicable 
plan) is $5,000. The adjusted annual premium for the second lowest 
cost silver self-only plan in G's rating area (G's applicable 
benchmark plan within the meaning of Sec.  1.36B-3(f)) is $5,500. In 
2016 G's household income is $40,000, which is 358 percent of the 
Federal poverty line for G's family size for the taxable year.
    (ii) Under paragraph (e)(4)(ii)(C) of this section, the credit 
allowable under section 36B is determined pursuant to section 36B. 
With household income at 358 percent of the Federal poverty line, 
G's applicable percentage is 9.5. Because each month in 2016 is a 
coverage month (within the meaning of Sec.  1.36B-3(c)), G's maximum 
credit allowable under section 36B is the excess of G's premium for 
the applicable benchmark plan over the product of G's household 
income and G's applicable percentage ($1,700). Therefore, under 
paragraph (e)(4)(ii)(A) of this section, G's required contribution 
is $3,300. Under paragraph (e)(1) of this section, G lacks 
affordable coverage for 2016 because G's required contribution 
($3,300) exceeds 8 percent of G's household income ($3,200).

    Example 2. Family. (i) In 2016 Taxpayers M and N are married and 
file a joint return. M and N have two children, P and Q. M, N, P, 
and Q are ineligible to enroll in minimum essential coverage other 
than coverage in the individual market for a month in 2016. The 
annual premium for M, N, P, and Q's applicable plan is $20,000. The 
adjusted annual premium for M, N, P, and Q's applicable benchmark 
plan (within the meaning of Sec.  1.36B-3(f)) is $25,000. M and N's 
household income is $80,000, which is 347 percent of the Federal 
poverty line for a family size of 4 for the taxable year.
    (ii) Under paragraph (e)(4)(ii)(C) of this section, the credit 
allowable under section 36B is determined pursuant to section 36B. 
With household income at 347 percent of the Federal poverty line, 
the applicable percentage is 9.5. Because each month in 2016 is a 
coverage month (within the meaning of Sec.  1.36B-3(c)), the maximum 
credit allowable under section 36B is the excess of the premium for 
the applicable benchmark plan over the product of the household 
income and the applicable percentage ($17,400). Therefore, under 
paragraph (e)(4)(ii)(A) of this section, the required contribution 
for M, N, P, and Q is $2,600. Under paragraph (f)(2) of this 
section, M, N, P, and Q have affordable coverage for 2016 because 
their required contribution ($2,600) does not exceed 8 percent of 
their household income ($6,400).

    Example 3.  Family with some members eligible for government 
sponsored coverage. (i) In 2016 Taxpayers U and V are married and 
file a joint return. U and V have two children, W and X. U and V are 
ineligible to enroll in minimum essential coverage other than 
coverage in the individual market for all months in 2016; however, W 
and X are eligible for coverage under CHIP for 2016 at an annual 
cost of $1,000 per child. The annual premium for U, V, W, and X's 
applicable plan is $20,000. The adjusted annual premium for the 
second lowest cost silver plan that would cover U and V (the 
applicable benchmark plan (within the meaning of Sec.  1.36B-3(f)) 
is $12,500. U and V's household income is $50,000, which is 217 
percent of the Federal poverty line for a family size of 4 for the 
taxable year. W and X do not enroll in CHIP coverage.
    (ii) Under paragraph (e)(4)(ii)(C) of this section, the credit 
allowable under section 36B is determined pursuant to section 36B. 
With household income at 217 percent of the Federal poverty line, 
the applicable percentage is 6.89. Each month in 2016 is a coverage 
month (within the meaning of Sec.  1.36B-3(c)) for U and V, but no 
months in 2016 are coverage months for W and X because they are 
eligible for CHIP coverage. The maximum credit allowable under 
section 36B is the excess of the premium for the applicable 
benchmark plan over the product of the household income and the 
applicable percentage ($9,055). Therefore, under paragraph 
(e)(4)(ii)(A) of this section, the required contribution is $10,945. 
Under paragraph (e)(1) of this section, U, V, W, and X lack 
affordable coverage for 2016 because their required contribution 
($10,945) exceeds 8 percent of their household income ($4,000).

    Example 4. Family with some members enrolled in government 
sponsored minimum essential coverage. The facts are the same as 
Example 3, except W and X enroll in CHIP coverage on January 1, 
2016. Under paragraph (e)(4)(ii)(B), U, V, W, and X are members of U 
and V's nonexempt family for 2016. Therefore, the annual premium for 
the applicable plan is the same as in Example 3 ($20,000). The 
maximum credit allowable under section 36B is also the same as in 
Example 3 ($9,055). Under paragraph (e)(4)(ii)(A) of this section, 
the required contribution is $10,945. Under paragraph (e)(1) of this 
section, U and V lack affordable coverage for 2016 because their 
required contribution ($10,945) exceeds 8 percent of their household 
income ($4,000).

    Example 5.  Simplified method for applicable plan 
identification. (i) In 2016 Taxpayer Y, a 42-year old unmarried 
individual, lives with her 17-year old nephew, Z. Y properly claims 
Z as a dependent for 2016. Neither Y nor Z is eligible for minimum 
essential coverage other than coverage in the individual market in 
2016. The Exchange serving the rating area where Y and Z reside does 
not offer any plan that would cover them both. For 2016, the annual 
premium for the lowest cost bronze plan covering Y is $5,000, and 
the annual premium for the lowest cost bronze plan covering Z is 
$4,500. The premium for the lowest cost bronze plan that would cover 
individuals with the characteristics of Y and Z that is offered in 
the Exchange serving the rating area where Y and Z reside is 
$10,000.
    (ii) Under paragraph (e)(4)(ii)(B), Z is included in Y's 
nonexempt family. Under paragraph (e)(4)(ii)(B)(2)(i) of this 
section, the premium for the applicable plan is the sum of the 
premiums for the lowest cost bronze plans that would cover Y and Z, 
or $9,500 ($5,000 + $4,500). Alternatively, under paragraph 
(e)(4)(ii)(B)(2)(ii) of this section, Y may irrevocably elect to use 
the premium for the lowest cost bronze plan that would cover 
individuals with the characteristics of Y and Z that is offered in 
the Exchange ($10,000) as the premium for the applicable plan in 
determining qualification for the exemption described in paragraph 
(e)(1) of this section.

    (f) Household income below filing threshold--(1) In general. An 
individual is an exempt individual for any taxable year for which the 
individual's household income is less than the applicable filing 
threshold.
    (2) Applicable filing threshold--(i) In general. For purposes of 
this section, applicable filing threshold means the amount of gross 
income that would trigger an individual's requirement to

[[Page 7329]]

file a Federal income tax return under section 6012(a)(1).
    (ii) Certain dependents. The applicable filing threshold for an 
individual who is properly claimed as a dependent by another taxpayer 
is equal to the other taxpayer's applicable filing threshold.
    (g) Members of Indian tribes. An individual is an exempt individual 
for a month that includes a day on which the individual is a member of 
an Indian tribe. For purposes of this section, Indian tribe means a 
group or community described in section 45A(c)(6).
    (h) Individuals with hardship exemption certification--(1) In 
general. An individual is an exempt individual for a month that 
includes a day on which the individual has in effect a hardship 
exemption certification described in paragraph (h)(2) of this section.
    (2) Hardship exemption certification. A hardship exemption 
certification is issued by an Exchange under section 1311(d)(4)(H) of 
the Affordable Care Act (42 U.S.C. 18031(d)(4)(H)) and 45 CFR 
155.605(g) and 45 CFR 155.615(f) and certifies that an individual has 
suffered a hardship (as that term is defined in 45 CFR 166.605(g)) with 
respect to the capability to obtain minimum essential coverage.
    (i) [Reserved]
    (j) Individuals with certain short coverage gaps--(1) In general. 
An individual is an exempt individual for a month the last day of which 
is included in a short coverage gap.
    (2) Short coverage gap--(i) In general. Short coverage gap means a 
continuous period of less than three months in which the individual is 
not covered under minimum essential coverage. If the individual does 
not have minimum essential coverage 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.
    (ii) Coordination with other exemptions. For purposes of this 
paragraph (j), an individual is treated as having minimum essential 
coverage for a month in which an individual is exempt under any of 
paragraphs (a) through (h) of this section.
    (iii) More than one short coverage gap during calendar year. If a 
calendar year includes more than one short coverage gap, the exemption 
provided by this paragraph (j) only applies to the earliest short 
coverage gap.
    (3) Continuous period--(i) In general. Except as provided in 
paragraph (j)(3)(ii) of this section, 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.
    (ii) Continuous period straddling more than one taxable year. If an 
individual does not have minimum essential coverage for a continuous 
period that begins in one taxable year and ends in the next, for 
purposes of applying this paragraph (j) to the first taxable year, the 
months in the second taxable year included in the continuous period are 
disregarded. For purposes of applying this paragraph (j) to the second 
taxable year, the months in the first taxable year included in the 
continuous period are taken into account.
    (4) Examples. The following examples illustrate the provisions of 
this paragraph (j). Unless stated otherwise, in each example the 
taxpayer's taxable year is a calendar year and the taxpayer is 
ineligible for any of the exemptions described in paragraphs (a) 
through (h) of this section for a month.

    Example 1. Short coverage gap. Taxpayer D has minimum essential 
coverage in 2016 from January 1 through March 2. After March 2, D 
does not have minimum essential coverage until D enrolls in an 
eligible employer-sponsored plan effective June 15. Under Sec.  
1.5000A-1(b), for purposes of section 5000A, D has minimum essential 
coverage for January, February, March, and June through December. 
D's continuous period without coverage is 2 months, April and May. 
April and May constitute a short coverage gap under paragraph 
(j)(2)(i) of this section.

    Example 2.  Continuous period of 3 months or more. The facts are 
the same as in Example 1, except D's coverage is not effective until 
July 1. D's continuous period without coverage is 3 months, April, 
May, and June. Under paragraph (j)(2)(i) of this section, April, 
May, and June are not included in a short coverage gap.

    Example 3.  Short coverage gap following exempt period. Taxpayer 
E is incarcerated from January 1 through June 2. E enrolls in an 
eligible employer-sponsored plan effective September 15. Under 
paragraph (d) of this section, E is exempt for the period January 
through June. Under paragraph (j)(2)(ii) of this section, E is 
treated as having minimum essential coverage for this period, and 
E's continuous period without minimum essential coverage is 2 
months, July and August. July and August constitute a short coverage 
gap under paragraph (j)(2)(i) of this section.

    Example 4.  Continuous period covering more than one taxable 
year. Taxpayer F, an unmarried individual with no dependents, has 
minimum essential coverage for the period January 1 through October 
15, 2016. F is without coverage until enrolling in an eligible 
employer-sponsored plan effective February 15, 2017. F files his 
Federal income tax return for 2016 on March 10, 2017. Under 
paragraph (j)(3)(ii) of this section, November and December of 2016 
are treated as a short coverage gap. However, November and December 
of 2016 are included in the continuous period that includes January 
2017. The continuous period for 2017 is over 3 months and, 
therefore, is not a short coverage gap.

    Example 5.  Enrollment following loss of coverage. The facts are 
the same as in Example 4 except F loses coverage on June 15, 2017. F 
enrolls in a new eligible employer-sponsored plan effective 
September 15, 2017. The continuous period without minimum essential 
coverage in July and August of 2017 is two months and, therefore, is 
a short coverage gap. Because January 2017 was not part of a short 
coverage gap, the earliest short coverage gap occurring in 2017 is 
the gap that includes July and August.

    Example 6. Multiple coverage gaps. (i) The facts are the same as 
in Example 5 except F has minimum essential coverage for November 
2016. Under paragraph (j)(3)(ii) of this section, December 2016 is 
treated as a short coverage gap.
    (ii) December 2016 is included in the continuous period that 
includes January 2017. This continuous period is two months and, 
therefore, January 2017 is the earliest month in 2017 that is 
included in a short coverage gap. Under paragraph (j)(2)(iii) of 
this section, the exemption under this paragraph (j) applies only to 
January 2017. Thus, the continuous period without minimum essential 
coverage in July and August of 2017 is not a short coverage gap.

    (k) Claiming exemptions from the shared responsibility payment--(1) 
Exemptions requiring certification by an Exchange. An individual 
obtains a religious conscience exemption certification (described in 
paragraph (a) of this section) or a hardship exemption certification 
(described in paragraph (h) of this section) from the Exchange serving 
the rating area where the individual resides. To claim the exemption, 
the individual includes the information specified in published guidance 
of general applicability, see Sec.  601.601(d)(2) of this chapter, with 
the Federal income tax return for the taxable year that includes the 
months for which the exemption is sought.
    (2) Exemptions that may be certified by an Exchange or claimed on a 
Federal income tax return--(i) Exemption certified by an Exchange. The 
exemptions for members of health care sharing ministries (described in 
paragraph (b) of this section), incarcerated individuals (described in 
paragraph (d) of this section), and members of Indian tribes (described 
in paragraph (g) of this section) may be certified in the manner and 
within the time specified in 45 CFR 155.610. To claim the exemption, an 
individual includes the information specified in published guidance of 
general applicability, see Sec.  601.601(d)(2) of this

[[Page 7330]]

chapter, with the Federal income tax return for the taxable year that 
includes the months for which the exemption is sought.
    (ii) Exemption claimed on a Federal income tax return. 
Alternatively, an individual, or a taxpayer who may claim the 
individual as a dependent for the taxable year, may claim the 
exemptions for members of health care sharing ministries (described in 
paragraph (b) of this section), incarcerated individuals (described in 
paragraph (d) of this section), and members of Indian tribes (described 
in paragraph (g) of this section) without certification by an Exchange 
by including the information specified in published guidance of general 
applicability, see Sec.  601.601(d)(2) of this chapter, with the 
Federal income tax return for the taxable year that includes the months 
for which the exemption is sought.
    (3) Exemptions that are claimed on Federal income tax returns. The 
exemptions for individuals who lack affordable coverage (described in 
paragraph (e) of this section), individuals with household income below 
the applicable return filing threshold (described in paragraph (f) of 
this section), and individuals with short coverage gaps (described in 
paragraph (j) of this section) may be claimed only by including the 
information specified in published guidance of general applicability, 
see Sec.  601.601(d)(2) of this chapter, with the Federal income tax 
return for the taxable year that includes the months for which the 
exemption is sought. Taxpayers are not required to file Federal income 
tax returns solely to claim the exemption for individuals with 
household income below the applicable return filing threshold 
(described in paragraph (f) of this section).


Sec.  1.5000A-4  Computation of shared responsibility payment.

    (a) In general. For each taxable year the shared responsibility 
payment is the lesser of--
    (1) The sum of the monthly penalty amounts for each individual in 
the shared responsibility family; or
    (2) The sum of the monthly national average bronze plan premiums 
for the shared responsibility family.
    (b) Monthly penalty amount--(1) In general. Monthly penalty amount 
means, for a month that a nonexempt individual is not covered under 
minimum essential coverage, 1/12 multiplied by the greater of--
    (i) The flat dollar amount; or
    (ii) The excess income amount.
    (2) Flat dollar amount--(i) In general. Flat dollar amount means 
the lesser of--
    (A) The sum of the applicable dollar amounts for all individuals 
included in the taxpayer's shared responsibility family; or
    (B) 300 percent of the applicable dollar amount (determined without 
regard to paragraph (b)(2)(iii) of this section) for the calendar year 
with or within which the taxable year ends.
    (ii) Applicable dollar amount. Except as provided in paragraphs 
(b)(2)(iii) and (b)(2)(iv) of this section, the applicable dollar 
amount is--
    (A) $95 in 2014;
    (B) $325 in 2015; or
    (C) $695 in 2016.
    (iii) Special applicable dollar amount for individuals under age 
18. If an individual has not attained the age of 18 on the first day of 
a month, the applicable dollar amount for the individual is equal to 
one-half of the applicable dollar amount (as expressed in paragraph 
(b)(2)(ii) of this section) for the calendar year in which the month 
occurs. For purposes of this paragraph (b)(2)(iii), an individual 
attains the age of 18 on the anniversary of the date when the 
individual was born. For example, an individual born on March 1, 1999, 
attains the age of 18 on March 1, 2017.
    (iv) Indexing of applicable dollar amount. In any calendar year 
after 2016, the applicable dollar amount is $695 as increased by the 
product of $695 and the cost-of-living adjustment determined under 
section 1(f)(3) for the calendar year. For purposes of this paragraph 
(b)(2)(iv) of this section, the cost-of-living adjustment is determined 
by substituting ``calendar year 2015'' for ``calendar year 1992'' in 
section 1(f)(3)(B). If any increase under this paragraph (b)(2)(iv) is 
not a multiple of $50, the increase is rounded to the next lowest 
multiple of $50.
    (3) Excess income amount--(i) In general. Excess income amount 
means the product of--
    (A) The excess of the taxpayer's household income over the 
taxpayer's applicable filing threshold (as defined in Sec.  1.5000A-
3(f)(2)); and
    (B) The income percentage.
    (ii) Income percentage. For purposes of this section, income 
percentage means--
    (A) 1.0 percent for taxable years beginning in 2013;
    (B) 1.0 percent for taxable years beginning in 2014;
    (C) 2.0 percent for taxable years beginning in 2015; or
    (D) 2.5 percent for taxable years beginning after 2015.
    (c) Monthly national average bronze plan premium. Monthly national 
average bronze plan premium means, for a month for which a shared 
responsibility payment is imposed, \1/12\ of the annual national 
average premium for qualified health plans that have a bronze level of 
coverage, would provide coverage for the taxpayer's shared 
responsibility family members who do not have minimum essential 
coverage for the month, and are offered through Exchanges for plan 
years beginning in the calendar year with or within which the taxable 
year ends.
    (d) Examples. The following examples illustrate the provisions of 
this section. In each example the taxpayer's taxable year is a calendar 
year and all members of the taxpayer's shared responsibility family are 
ineligible for any of the exemptions described in Sec.  1.5000A-3 for a 
month.

    Example 1. Unmarried taxpayer without minimum essential 
coverage. (i) In 2016 Taxpayer G is an unmarried individual with no 
dependents. G does not have minimum essential coverage for any month 
in 2016. G's household income is $120,000. G's applicable filing 
threshold is $12,000. The annual national average bronze plan 
premium for G is $5,000.
    (ii) For each month in 2016, under paragraph (b)(2)(ii) of this 
section, G's applicable dollar amount is $695. Under paragraph 
(b)(2) of this section, G's flat dollar amount is $695 (the lesser 
of $695 and $2,085 ($695 x 3)). Under paragraph (b)(3) of this 
section, G's excess income amount is $2,700 (($120,000-$12,000) x 
0.025). Therefore, under paragraph (b)(1) of this section, the 
monthly penalty amount is $225 (the greater of $58 ($695/12) or $225 
($2,700/12)).
    (iii) The sum of the monthly penalty amounts is $2,700 ($225 x 
12). The sum of the monthly national average bronze plan premiums is 
$5,000 ($5,000/12 x 12). Therefore, under paragraph (a) of this 
section, the shared responsibility payment imposed on G for 2016 is 
$2,700 (the lesser of $2,700 or $5,000).
    Example 2. Part-year coverage. The facts are the same as in 
Example 1, except G has minimum essential coverage for January 
through June. The sum of the monthly penalty amounts is $1,350 ($225 
x 6). The sum of the monthly national average bronze plan premiums 
is $2,500 ($5,000/12 x 6). Therefore, under paragraph (a) of this 
section, the shared responsibility payment imposed on G for 2016 is 
$1,350 (the lesser of $1,350 or $2,500).
    Example 3. Family without minimum essential coverage. (i) In 
2016, Taxpayers H and J are married and file a joint return. H and J 
have three children: K, age 21, L, age 15, and M, age 10. No member 
of the family has minimum essential coverage for any month in 2016. 
H and J's household income is $120,000. H and J's applicable filing 
threshold is $24,000. The annual national average bronze plan 
premium for a family of 5 (2 adults, 3 children) is $20,000.
    (ii) For each month in 2016, under paragraphs (b)(2)(ii) and 
(b)(2)(iii) of this section, the applicable dollar amount is $2,780 
(($695 x 3 adults) + (($695/2) x 2

[[Page 7331]]

children)). Under paragraph (b)(2)(i) of this section, the flat 
dollar amount is $2,085 (the lesser of $2,780 and $2,085 ($695 x 
3)). Under paragraph (b)(3) of this section, the excess income 
amount is $2,400 (($120,000-$24,000) x 0.025). Therefore, under 
paragraph (b)(1) of this section, the monthly penalty amount is $200 
(the greater of $173.75 ($2,085/12) or $200 ($2,400/12)).
    (iii) The sum of the monthly penalty amounts is $2,400 ($200 x 
12). The sum of the monthly national average bronze plan premiums is 
$20,000 ($20,000/12 x 12). Therefore, under paragraph (a) of this 
section, the shared responsibility payment imposed on H and J for 
2016 is $2,400 (the lesser of $2,400 or $20,000).
    Example 4. Change in shared responsibility family during the 
year. (i) The facts are the same as in Example 3, except J has 
minimum essential coverage for January through June. The annual 
national average bronze plan premium for a family of 4 (1 adult, 3 
children) is $18,000.
    (ii) For the period January through June 2016, under paragraphs 
(b)(2)(ii) and (b)(2)(iii) of this section the applicable dollar 
amount is $2,085 (($695 x 2 adults) + (($695/2) x 2 children)). 
Under paragraph (b)(2)(i) of this section, the flat dollar amount is 
$2,085 (the lesser of $2,085 or $2,085 ($695 x 3)).
    (iii) For the period July through December 2016, the applicable 
dollar amount is $2,780 (($695 x 3 adults) + (($695/2) x 2 
children)). Under paragraph (b)(2) of this section, the flat dollar 
amount is $2,085 (the lesser of $2,780 or $2,085 ($695 x 3)). Under 
paragraph (b)(3) of this section, the excess income amount is $2,400 
(($120,000-$24,000) x 0.025). Therefore, under paragraph (b)(1) of 
this section, for January through June the monthly penalty amount is 
$200 (the greater of $173.75 ($2,085/12) or $200 ($2,400/12)). The 
monthly penalty amount for July through December is $200 (the 
greater of $173.75 ($2,085/12) or $200 ($2,400/12)).
    (iv) The sum of the monthly penalty amounts is $2,400 ($200 x 
12). The sum of the monthly national average bronze plan premiums is 
$19,000 ((($18,000/12) x 6) + (($20,000/12) x 6))). Therefore, under 
paragraph (a) of this section, the shared responsibility payment 
imposed on H and J for 2016 is $2,400 (the lesser of $2,400 or 
$19,000).
    Example 5. Eighteenth birthday during the year. (i) In 2016 
Taxpayers S and T are married and file a joint return. S and T have 
one child, U, who turns 18 years old on June 28. No member of the 
family has minimum essential coverage for any month in 2016. S and 
T's household income is $60,000. S and T's applicable filing 
threshold is $24,000. The annual national average bronze plan 
premium for a family of 3 (2 adults, 1 child) is $15,000.
    (ii) For the period January through June 2016, under paragraphs 
(b)(2)(ii) and (b)(2)(iii) of this section, the applicable dollar 
amount is $1,737.50 (($695 x 2 adults) + ($695/2) x 1 child)). Under 
paragraph (b)(2) of this section, the flat dollar amount is 
$1,737.50 (the lesser of $1,737.50 or $2,085 ($695 x 3)).
    (iii) For the period July through December 2016, the applicable 
dollar amount is $2,085 ($695 x 3). Under paragraph (b)(2) of this 
section, the flat dollar amount is $2,085 (the lesser of $2,085 or 
$2,085 ($695 x 3)). Under paragraph (b)(3) of this section, the 
excess income amount is $900 (($60,000-$24,000) x 0.025). Therefore, 
under paragraph (b)(1) of this section, for January through June the 
monthly penalty amount is $144.79 (the greater of $144.79 
($1,737.50/12) or $75 ($900/12)). The monthly penalty amount for 
July through December is $173.75 (the greater of $173.75 ($2,085/12) 
or $75 ($900/12)).
    (iv) The sum of the monthly penalty amounts is $1,911.24 
(($144.79 x 6) + ($173.75 x 6)). The sum of the monthly national 
average bronze plan premiums is $15,000 ($15,000/12 x 12). 
Therefore, under paragraph (a) of this section, the shared 
responsibility payment imposed on H and J for 2016 is $1,911.24 (the 
lesser of $1,911.24 or $15,000).


Sec.  1.5000A-5  Administration and procedure.

    (a) In general. A taxpayer's liability for the shared 
responsibility payment for a month must be reported on the taxpayer's 
Federal income tax return for the taxable year that includes the month. 
The time for assessing the shared responsibility payment is the same as 
that prescribed by section 6501 for the taxable year to which the 
Federal income tax return on which the shared responsibility payment is 
to be reported relates. The shared responsibility payment is payable 
upon notice and demand by the Secretary, and except as provided in 
paragraph (b) of this section, is assessed and collected in the same 
manner as an assessable penalty under subchapter B of chapter 68 of the 
Internal Revenue Code. Therefore, the shared responsibility payment is 
not subject to deficiency procedures of subchapter B of chapter 63 of 
the Internal Revenue Code. Interest on this payment accrues in 
accordance with the rules in section 6601.
    (b) Special rules. Notwithstanding any other provision of law--
    (1) Waiver of criminal penalties. In the case of a failure by a 
taxpayer to timely pay the shared responsibility payment, the taxpayer 
is not subject to criminal prosecution or penalty for the failure.
    (2) Limitations on liens and levies. If a taxpayer fails to pay the 
shared responsibility payment imposed by this section and Sec. Sec.  
1.5000A-1 through 1.5000A-4, the Secretary will not file notice of lien 
with respect to any property of the taxpayer, or levy on any such 
property with respect to such failure.
    (3) Authority to offset against overpayment. Nothing in this 
section prohibits the Secretary from offsetting any liability for the 
shared responsibility payment against any overpayment due the taxpayer, 
in accordance with section 6402(a).
    (c) Effective/applicability date. This section and Sec. Sec.  
1.5000A-1 through 1.5000A-4 apply for months beginning after December 
31, 2013.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2013-02141 Filed 1-30-13; 11:15 am]
BILLING CODE 4830-01-P