[Federal Register Volume 78, Number 169 (Friday, August 30, 2013)]
[Rules and Regulations]
[Pages 53646-53664]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-21157]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9632]
RIN 1545-BL36


Shared Responsibility Payment for Not Maintaining Minimum 
Essential Coverage

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations on 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 final regulations provide guidance to 
individual taxpayers on the liability under section 5000A of the 
Internal Revenue Code for the shared responsibility payment for not 
maintaining minimum essential coverage and largely finalize the rules 
in the notice of proposed rulemaking published in the Federal Register 
on February 1, 2013.

DATES: Effective date: These regulations are effective on August 30, 
2013.
    Applicability date: For date of applicability, see Sec.  1.5000A-
5(c).

FOR FURTHER INFORMATION CONTACT: Sue-Jean Kim or John B. Lovelace at 
(202) 622-4960 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in these regulations has 
been reviewed and approved by the Office of Management and Budget in 
accordance with the Paperwork and Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-0074. The collection of information 
in these final regulations is in Sec.  1.5000A-3 and Sec.  1.5000A-4. 
The information is necessary to determine whether the shared 
responsibility payment provision applies to a taxpayer, and, if it 
applies, the amount of the penalty. The likely respondents are 
individuals required to file Federal income tax returns under section 
6012(a)(1).
    Estimated total annual reporting burden: 7,500,000 hours.
    Estimated annual burden hours per respondent varies from .1 to .5 
hours, depending on individual circumstances, with an estimated average 
of .21 hours.
    Estimated number of respondents: 36,000,000.
    Estimated frequency of responses: Annually.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number assigned by the Office of 
Management and Budget.
    Book or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by section 6103.

Background

    This document amends the Income Tax Regulations (26 CFR part 1) by 
adding final regulations under section 5000A on the individual shared 
responsibility provision. Section 5000A was enacted by 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). On February 1, 2013, a notice of proposed 
rulemaking (REG-148500-12) was published in the Federal Register (78 FR 
7314).
    Written comments responding to the notice of proposed rulemaking of 
February 1, 2013, were received. The comments are available for public 
inspection at www.regulations.gov or on request. A public hearing was 
held on May 29, 2013. After considering all the comments, the proposed 
regulations are adopted as revised by this Treasury decision. The 
comments and revisions are discussed in the preamble.
    In related rulemaking, on July 1, 2013, the Department of Health 
and Human Services (HHS) promulgated final regulations implementing 
certain functions of the Affordable Insurance Exchanges (Exchanges) to 
determine eligibility for and grant certain exemptions from the shared 
responsibility payment under section 5000A, and implementing the 
responsibilities of the Secretary of HHS, in coordination with the 
Secretary of the Treasury, to designate other health benefits coverage 
as minimum essential coverage under section 5000A(f)(1)(E). Patient 
Protection and Affordable Care Act: Exchange Functions: Eligibility for 
Exemptions; Miscellaneous Minimum Essential Coverage Provisions, 78 FR 
39494 (codified at 45 CFR parts 155 and 156) (the HHS MEC regulations). 
The HHS MEC regulations provide, among other things, eligibility 
standards for the hardship exemption, setting forth both general and 
specific descriptions of the circumstances in which an Exchange will 
grant a hardship exemption certification as well as those in which a 
hardship exemption may be claimed on a Federal income tax return. The 
HHS MEC regulations also designate certain coverage as minimum 
essential coverage and outline substantive and procedural requirements 
for other types of coverage to be recognized as minimum essential 
coverage.

Summary of Comments and Explanation of Revisions

I. Maintenance of Minimum Essential Coverage

A. Coverage for a Month

    The proposed regulations provide that, for any calendar month, an 
individual has 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.
    A commentator recommended that an individual be covered for a month 
if the individual is enrolled in and entitled to receive benefits under 
a plan or program identified as minimum essential coverage for a 
majority of the days in the month. The commentator asserted that 
allowing one day of enrollment in a month to satisfy the coverage 
requirement would permit individuals to obtain minimum essential 
coverage for only one day and then forgo it for the rest of the month 
without any adverse consequence under section 5000A.
    The Treasury Department and the IRS considered a rule requiring 
coverage for a majority of days in a month but chose the one-day rule 
because it provides administrative convenience for both taxpayers and 
the IRS. Without the one-day rule, taxpayers and the IRS would need to 
determine the number of days each person in a shared responsibility

[[Page 53647]]

family is covered in each month of a taxable year. Accordingly, the 
final regulations do not adopt this recommendation. The Treasury 
Department and the IRS will reconsider this rule if future developments 
indicate that the rule is being abused, for example, if individuals 
obtain coverage for a single day in a month over the course of several 
months in a year.
    A commentator requested that the final regulations provide that an 
individual who has submitted an application for Medicaid but is 
awaiting approval for enrollment have minimum essential coverage while 
the application is pending approval. In general, Medicaid coverage is 
granted retroactively to the date the application is filed. Section 
5000A(a) requires that an individual have minimum essential coverage 
for a month. If retroactive coverage is granted, an applicant has 
minimum essential coverage. If the application is denied, the applicant 
does not have minimum essential coverage. Accordingly, the final 
regulations do not adopt this recommendation. However, an individual 
without coverage may be eligible for an exemption, such as a short 
coverage gap exemption. See Sec.  1.5000A-3 and 45 CFR 155.605.

B. Liability for Shared Responsibility Payment

1. Liability for Dependents
    In general, section 151 allows individual taxpayers a deduction for 
personal exemptions for the taxpayer, the taxpayer's spouse, and any 
dependents (as defined in section 152) of the taxpayer for the taxable 
year. Section 152 defines dependent to include a taxpayer's qualifying 
children and qualifying relatives. Although a section 151 deduction is 
allowable to a taxpayer for the taxpayer's dependents (as defined in 
section 152), a deduction is allowed to a taxpayer under section 151 
only if the taxpayer properly claims the dependent. Consistent with 
section 5000A(b)(3), the proposed regulations provide that a taxpayer 
is liable for the shared responsibility payment imposed for any 
individual for a month in a taxable year for which the individual is 
the taxpayer's dependent (as defined in section 152) 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.
    Several commentators recommended modifications to the section 5000A 
rule addressing liability for dependents. Some commentators recommended 
that a taxpayer's liability for the shared responsibility payment be 
limited to individuals eligible for the same minimum essential coverage 
for which the taxpayer is eligible. The commentators stated that many 
taxpayers are unable to enroll their qualifying children in their 
employer-provided plans. Other commentators recommended that a 
taxpayer's liability under section 5000A extend solely to those 
dependents who meet the requirements to be a qualifying child under 
section 152, so that a taxpayer's qualifying relatives would be 
disregarded. In addition, commentators requested that section 5000A 
liability extend only to those dependents who are actually claimed by 
the taxpayer. They stated that the complexity in identifying a 
potential dependent before the taxable year begins, particularly a 
qualifying relative, would prevent them from making informed coverage 
decisions. The commentators claimed that, unless the rule is revised, 
those taxpayers may unexpectedly be liable for shared responsibility 
payments for dependents for whom a deduction under section 151 is not 
claimed.
    Section 5000A(b)(3) provides that a taxpayer is liable for the 
shared responsibility payment for an individual without minimum 
essential coverage if the individual is the taxpayer's dependent as 
defined in section 152. While the definition of family size in section 
5000A(c)(4)(A) refers to dependents for whom a taxpayer claims a 
deduction under section 151, section 5000A(b)(3) refers to section 152, 
and section 152 defines dependent based on status as a qualifying child 
or qualifying relative. Accordingly, the final regulations retain the 
rule imposing liability on the taxpayer who may claim an individual as 
a dependent.
    Other commentators recommended that a non-custodial parent who must 
provide the health care of a child under a separation agreement, 
divorce decree, court order, or other similar legal obligation and who 
fails to provide that health care be liable for the shared 
responsibility payment attributable to that child even if the child is 
the custodial parent's dependent under section 152.
    Section 5000A places liability for a dependent's lack of minimum 
essential coverage on the taxpayer who may claim the individual as a 
dependent. Section 5000A does not provide that this liability may be 
assigned to another taxpayer, even if the other taxpayer has a legal 
obligation to provide the child's health care. Accordingly, the final 
regulations do not adopt this recommendation. However, HHS has 
addressed the situation described in the comments in recently issued 
guidance, permitting Exchanges to grant a hardship exemption under 45 
CFR 155.605(g)(1) to the custodial parent for a child in this situation 
if the child is ineligible for coverage under Medicaid or the 
Children's Health Insurance Program (CHIP). See HHS Center for Consumer 
Information & Insurance Oversight, Guidance on Hardship Exemption 
Criteria and Special Enrollment Periods (June 26, 2013).
2. Special Rule for Adopted Children
    The proposed regulations provide special rules for determining 
liability for the shared responsibility payment attributable to 
children 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 for the taxable year when the adoption occurs, the taxpayer 
is not liable for a shared responsibility payment attributable to the 
child for the month of the adoption and any preceding month. 
Conversely, if a taxpayer who is entitled to claim a child as a 
dependent 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 month of the adoption and any 
following month.
    Similar to the comment on a custodial parent's liability, 
commentators recommended that a taxpayer's liability for shared 
responsibility payment for an adopted child be based on the state law 
assigning responsibility for the child's health care, not when a child 
is adopted or placed for foster care.
    As explained previously in section I.B.1. of this preamble, section 
5000A(b)(3) provides that a taxpayer is liable for the shared 
responsibility payment for an individual without minimum essential 
coverage if the individual is the taxpayer's dependent as defined in 
section 152. Determining when a taxpayer is liable for an adopted 
child's health care under numerous and varying state laws would 
introduce considerable administrative difficulty and uncertainty into 
the implementation and administration of section 5000A. Accordingly, 
the final regulations do not modify the rule for determining liability 
for the shared responsibility payment attributable to children adopted 
or placed in foster care during a taxable year.

[[Page 53648]]

C. Definitions of Terms

1. Insurance-related Terms
    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. To provide additional guidance and 
clarity, the final regulations specifically identify the terms used in 
section 5000A that also are used in Title I of the Affordable Care Act. 
The additional terms defined include health insurance coverage, 
individual health insurance coverage, individual market, and state.
2. Household Income
    Section 5000A(c)(4)(B) provides that the term household income 
means the modified adjusted gross income of the taxpayer plus the 
modified adjusted gross income of all members of the taxpayer's family 
required to file a tax return under section 1 for the taxable year. The 
proposed regulations provide that the determination of whether a family 
member is required to file a return is made without regard to section 
1(g)(7). Under section 1(g)(7), a parent may, if certain requirements 
are met, elect to include in the parent's gross income, the gross 
income of his or her child. If the parent makes the election, the child 
is treated as having no gross income for the taxable year. The final 
regulations remove ``without regard to section 1(g)(7).'' The proposed 
regulations' use of the phrase ``without regard to section 1(g)(7)'' 
implies that the child's gross income is included in both the parent's 
adjusted gross income and the child's adjusted gross income in 
determining household income. The final regulations remove the phrase 
to clarify that if a parent makes an election under section 1(g)(7), 
household income includes the child's gross income included on the 
parent's return and the child is treated as having no gross income.

II. Minimum Essential Coverage

A. Government-sponsored Programs

1. Medicaid Coverage for Pregnant Women
    The proposed regulations exclude Medicaid coverage for pregnant 
women under section 1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) of the 
Social Security Act (42 U.S.C. 1396a(a)(10)(A)(i)(IV), 
(a)(10)(A)(ii)(IX)) (``pregnancy-related Medicaid'') from government-
sponsored programs constituting minimum essential coverage. Some 
commentators commended this treatment of pregnancy-related Medicaid. 
Other commentators expressed concern that women who have pregnancy-
related Medicaid and who do not have any form of minimum essential 
coverage would, under the proposed regulations, be subject to a shared 
responsibility payment. The commentators recommended that pregnancy-
related Medicaid be considered minimum essential coverage solely for 
section 5000A (and not section 36B). In the alternative, they 
recommended that women enrolled in pregnancy-related Medicaid who are 
not also enrolled in services providing minimum essential coverage be 
granted a hardship exemption from the shared responsibility payment.
    The final regulations do not adopt the recommendation to treat 
pregnancy-related Medicaid as minimum essential coverage solely for 
section 5000A. As explained in the preamble to the proposed 
regulations, states have the option to provide pregnant women with full 
Medicaid coverage as pregnancy-related Medicaid. Some states adopt this 
option. Other states do not provide full Medicaid coverage as 
pregnancy-related Medicaid. The final regulations continue to provide 
that pregnancy-related Medicaid is not minimum essential coverage.
    In addition, the final regulations do not adopt the recommendation 
that women with pregnancy-related Medicaid be granted a hardship 
exemption because rules regarding eligibility for the hardship 
exemption fall under the jurisdiction of HHS. See section 5000A(e)(5).
    However, individuals who are eligible for pregnancy-related 
Medicaid may not know at open enrollment for the 2014 coverage year 
that such coverage is not minimum essential coverage. Accordingly, the 
Treasury Department and the IRS anticipate issuing guidance providing 
that women covered with pregnancy-related Medicaid for a month in 2014 
will not be liable for the shared responsibility payment for that 
month.
2. Section 1115 Demonstration Projects
    Section 1115 of the Social Security Act (42 U.S.C. 1315) authorizes 
the Secretary of HHS to approve experimental, pilot, or demonstration 
projects that promote the objectives of the Medicaid program (Section 
1115 demonstration projects). These projects give states flexibility to 
test new or existing approaches to financing and delivering Medicaid. 
Some Section 1115 demonstration projects provide full Medicaid 
benefits, while others provide a specific and narrow set of benefits 
similar to the 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)) or the optional coverage of tuberculosis-
related services under section 1902(a)(10)(A)(ii)(XII) of the Social 
Security Act (42 U.S.C. 1396a(a)(10)(A)(ii)(XII)).
    The proposed regulations do not specifically address whether 
Section 1115 demonstration projects constitute Medicaid coverage under 
Title XIX of the Social Security Act for purposes of section 5000A. A 
number of commentators recommended against considering as minimum 
essential coverage Section 1115 demonstration projects that provide a 
specific and narrow set of benefits.
    The final regulations reserve on addressing the status of Section 
1115 demonstration projects as minimum essential coverage and, 
accordingly, do not address the commentators' recommendation that a 
specific and narrow set of benefits provided under a Section 1115 
demonstration project be excluded from the definition of minimum 
essential coverage. It is anticipated that future regulations that will 
be effective starting January 1, 2014 will provide that coverage 
authorized under a Section 1115 demonstration project is not 
government-sponsored minimum essential coverage. However, certain 
coverage may be recognized as minimum essential coverage by the 
Secretary of HHS, in consultation with the Secretary of the Treasury, 
under section 5000A(f)(1)(E).
    Finally, it is anticipated that to the extent future guidance 
excludes benefits provided under certain Section 1115 demonstration 
projects from minimum essential coverage, the guidance also will 
provide that individuals who are enrolled in a Section 1115 
demonstration project that is not minimum essential coverage for a 
month in 2014 will not be liable for the shared responsibility payment 
for that month.
3. Medicaid Premium Assistance Programs
    The proposed regulations do not specifically address whether and to 
what extent Medicaid premium assistance programs are minimum essential 
coverage. Commentators recommended that, to preserve affected Medicaid 
beneficiaries' ability to receive the premium tax credit under section 
36B, Medicaid premium assistance programs, which are intended to 
supplement comprehensive coverage, be excluded from the definition of 
minimum essential coverage. Commentators referred to, in particular, 
the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) state plan 
option

[[Page 53649]]

(commonly referred to as the ``Katie Beckett option''), coverage under 
an optional Medicaid coverage group authorized by the Family 
Opportunity Act of 2006 (FOA), home and community based services 
waivers, and ``Katie Beckett'' waivers.
    Medicaid premium assistance programs function as a service delivery 
mechanism for benefits covered under the Medicaid program and do not 
solely supplement a private health insurance plan. In general, Medicaid 
premium assistance programs are provided under the authority of 
sections 1905, 1906, and 1906A of the Social Security Act (42 U.S.C. 
1396d, 1396e, and 1396e-1) to individuals described in section 1902 of 
the Social Security Act (42 U.S.C. 1396a) who are eligible for full 
Medicaid benefits.
    Under section 1906 or 1906A of the Social Security Act, states may 
use Medicaid funds to pay premiums and cost sharing incurred by 
Medicaid-eligible individuals to enroll in employer-sponsored coverage 
if it is cost-effective for the state to do so (as compared to the cost 
of providing covered services through a standard service delivery 
mechanism, such as fee-for-service or per-patient payments to a managed 
care organization). States exercising this option must provide ``wrap 
around'' coverage to ensure individuals can access benefits covered 
under the state's Medicaid program that are not covered under the 
employer-sponsored insurance. Authority for states to create similar 
premium assistance programs for individuals to enroll in private 
coverage in the individual market is provided in regulations under the 
authority of section 1905(a)(29) of the Social Security Act published 
by HHS on July 15, 2013, at 42 CFR 435.1015. Individuals enrolled in 
the premium assistance programs are eligible for full Medicaid 
benefits. Accordingly, the final regulations do not adopt the 
commentators' recommendation. Instead, coverage under a Medicaid 
premium assistance program under the authority of section 1905, 1906, 
or 1906A of the Social Security Act to individuals described in section 
1902 is minimum essential coverage.
    Section 134(a) of TEFRA (Pub. L. 97-248) added section 1902(e)(3) 
of the Social Security Act (42 U.S.C. 1396a(e)(3)), under which states 
may provide Medicaid to a disabled child who requires an institutional 
level of care (such as that provided in a nursing facility) without 
regard to the income of the child's parent(s). A child eligible under 
this option is eligible for full Medicaid benefits. Enrollment of the 
child in private health insurance is not required as a condition of 
eligibility under the TEFRA option. Whenever a Medicaid beneficiary is 
enrolled in other coverage, Medicaid serves as the secondary payer. 
Thus, if a child enrolled in Medicaid under this option also has other 
coverage, Medicaid will serve as the secondary payer, and in that sense 
will wrap around the child's private insurance coverage. Because an 
eligible child receives full Medicaid benefits, the coverage provided 
is minimum essential coverage.
    Sections 6062(a)(1)(A)(iii) and 6062(a)(1)(B) of FOA (Pub. L. 109-
171) added sections 1902(a)(10)(A)(ii)(XIX) and 1902(cc) of the Social 
Security Act, under which states may provide Medicaid to disabled 
children who are not otherwise eligible for Medicaid because their 
income is too high. Children eligible for Medicaid under this option 
are entitled to the full Medicaid benefits provided to all other 
children enrolled in Medicaid. However, under section 1902(cc)(2)(A) of 
the Social Security Act, if the child's parents have access to 
employer-sponsored coverage in which the child can enroll and the 
employer pays at least 50 percent of the annual premium for coverage of 
the child under the employer plan, the family is required to enroll the 
child in the employer-sponsored coverage, and Medicaid will wrap around 
that coverage, providing services not covered under the employer plan. 
If the parents do not have access to employer-sponsored coverage for 
the child or if the employer does not contribute at least the minimum 
amount required, the family is not required to enroll the child in the 
coverage, and the Medicaid program will cover all Medicaid benefits. In 
either situation, the child is eligible for all Medicaid benefits. 
Therefore, coverage under this option is minimum essential coverage.
    In addition, under Section 1915(c) of the Social Security Act (42. 
U.S.C. 1396n(c)) states have the authority to provide home and 
community based services to certain individuals covered under the 
Medicaid state plan in addition to the full Medicaid benefit package. 
Because these individuals receive comprehensive Medicaid benefits, 
coverage under a home and community based services waiver authorized 
under section 1915(c) of the Social Security Act is minimum essential 
coverage.
    The treatment of Medicaid coverage provided through a ``Katie 
Beckett'' waiver referred to by the commentators is addressed in 
section II.A.2. of this preamble, discussing Section 1115 demonstration 
projects.
4. Medicaid for the Medically Needy
    The Social Security Act provides states with flexibility to extend 
Medicaid eligibility to individuals with high medical expenses who 
would otherwise be eligible for Medicaid but for their income level 
(medically needy individuals). See section 1902(a)(10)(C) of the Social 
Security Act (42 U.S.C. 1396a(a)(10)(C)) and 42 CFR 435.300 and 
following (Subpart D). Over half of the states have opted to provide 
coverage to medically needy individuals. In general, individuals whose 
income is in excess of the maximum allowed for Medicaid eligibility but 
who are otherwise eligible for Medicaid may ``spend down'' their 
income, based on incurred medical expenses, and thereby become eligible 
for the benefits provided for medically needy individuals in the state. 
States providing coverage to medically needy individuals must establish 
a ``budget period'' of between one and six months. Eligibility for 
coverage as a medically needy individual, which must be determined each 
budget period, is provided only after an individual incurs sufficient 
medical expenses to ``spend down'' to the qualifying income level. 
Thus, depending on an individual's medical needs and the options 
exercised by the state program, eligibility may be assessed as 
frequently as every month, and an individual may move in and out of 
Medicaid coverage multiple times in a year. States are permitted, and 
some have adopted the option, to offer benefits to the medically needy 
that are more limited than the benefits generally provided to Medicaid 
beneficiaries.
    Commentators requested excluding Medicaid coverage provided to 
medically needy individuals from the definition of minimum essential 
coverage because the benefits available may be limited. In addition, 
treating Medicaid coverage for the medically needy as minimum essential 
coverage can lead those individuals to experience multiple changes in 
premium tax credit eligibility throughout a year, creating 
administrative complexity.
    The final regulations reserve on whether Medicaid coverage provided 
to a medically needy individual is minimum essential coverage. It is 
anticipated that future regulations that will be effective starting in 
2014 will provide that Medicaid coverage provided to a medically needy 
individual is not government-sponsored minimum essential coverage. 
However, certain coverage of this type may be recognized as minimum 
essential coverage by the HHS Secretary, in

[[Page 53650]]

consultation with the Treasury Secretary, under section 5000A(f)(1)(E).
    To the extent that future guidance excludes certain Medicaid 
coverage provided to medically needy individuals from the definition of 
minimum essential coverage, it is anticipated that the guidance also 
will provide that individuals receiving Medicaid coverage provided to 
medically needy individuals for a month in 2014 will not be liable for 
the shared responsibility payment for that month.
5. TRICARE
    In accordance with section 5000A(f)(1)(A)(v), the proposed 
regulations provide that minimum essential coverage under government-
sponsored programs includes medical coverage under chapter 55 of Title 
10, U.S.C., including coverage under the TRICARE program. However, 
after publishing the proposed regulations, the Treasury Department and 
the IRS identified two programs under chapter 55 of Title 10, U.S.C., 
as providing benefits and services that are limited either in 
availability or in scope: (1) The program providing care limited to the 
space available in a facility for the uniformed services for 
individuals excluded from TRICARE coverage under section 1079(a), 
1086(c)(1), or 1086(d)(1) of Title 10, U.S.C.; and (2) the program for 
individuals not on active duty for an injury, illness, or disease, 
incurred or aggravated in the line of duty under sections 1074a and 
1074b of Title 10, U.S.C.
    The proposed regulations exclude certain government-provided health 
care programs from the definition of minimum essential coverage because 
they do not provide a comprehensive level of benefits. Similarly, 
certain limited benefit TRICARE programs do not provide a comprehensive 
level of benefits. It is anticipated that future regulations that will 
be effective starting in 2014 will provide that coverage under a 
limited benefit TRICARE program is not minimum essential coverage. 
However, the final regulations reserve on the status of these programs 
as minimum essential coverage.
    It is anticipated that if future guidance excludes the limited-
availability TRICARE program under section 1079(a), 1086(c)(1), or 
1086(d)(1) of Title 10, U.S.C., and the limited-scope line-of-duty 
TRICARE program under sections 1074a and 1074b of Title 10, U.S.C., 
from the definition of minimum essential coverage, the guidance also 
will provide that individuals enrolled in either TRICARE program for 
any month in 2014 will not be liable for a shared responsibility 
payment for that month.

B. Eligible Employer-Sponsored Coverage

1. Self-Insured Group Health Plans
    The preamble to the proposed regulations explains that a self-
insured group health plan is an eligible employer-sponsored plan. 
Several commentators requested additional clarification concerning the 
treatment of a self-insured group health plan because these plans are 
not offered in a large or small group market within a state. The rule 
in the proposed regulations is revised to clarify that a self-insured 
group health plan is an eligible employer-sponsored plan, regardless of 
whether the plan could be offered in the large or small group market in 
a state.
2. Arrangements To Provide Employer-Subsidized Coverage Under Plans in 
the Individual Market
    The proposed regulations do not specifically address arrangements 
in which an employer provides subsidies or funds a pre-tax arrangement 
for employees to use to obtain coverage under plans offered in the 
individual market (as defined in section 5000A(f)(1)(C)). The Treasury 
Department and the IRS received several comments on arrangements of 
this type. One commentator suggested that certain arrangements of this 
type be treated as eligible employer-sponsored plans, arguing that 
treating these arrangements as eligible employer-sponsored plans would 
increase flexibility for employers and employees in satisfying their 
respective shared responsibility requirements.
    The final regulations do not specifically address these 
arrangements. It is anticipated that future guidance will address the 
application of section 5000A and the ACA's insurance market reforms to 
these types of arrangements.
3. Former Employees
    The proposed regulations provide that the term employee includes 
former employees and, as a result, treat coverage provided by an 
employer to former employees as coverage under an eligible employer-
sponsored plan. Commentators noted that retiree coverage may be unlike 
coverage offered to current employees in terms of cost, scope of 
benefits, and enrollment opportunities and, therefore, should be 
treated differently from other employer-provided coverage.
    Employer-sponsored group health plans offered to former employees 
are treated similarly for purposes of the Public Health Service Act, 
the Employee Retirement Income Security Act, and other provisions of 
the Code. Therefore, the final regulations do not adopt this 
suggestion, and retiree coverage under a group health plan is minimum 
essential coverage. However, the final regulations provide that, for 
the lack of affordable coverage exemption, an individual will not be 
eligible for retiree coverage unless the individual enrolls. Therefore, 
an individual who is eligible for retiree coverage but does not enroll 
disregards that eligibility in determining qualification for the lack 
of affordable coverage exemption.
4. Plans Offered on Behalf of Employers
    The Treasury Department and the IRS received comments asking 
whether medical coverage offered to employees by an organization acting 
on behalf of an employer qualifies as an eligible employer-sponsored 
plan. For example, commentators asked whether a multiemployer plan or a 
single employer collectively-bargained plan is an eligible employer-
sponsored plan for the employees covered by the collective bargaining 
arrangement and eligible to participate in the plan. In addition, 
commentators asked whether a plan offered to an employer's employees by 
a third party, such as a professional employer organization or leasing 
company, is an eligible employer-sponsored plan for the employees 
eligible to participate in the plan. The final regulations are revised 
to provide that a plan offered by an employer to an employee includes a 
plan offered to an employee on behalf of an employer. No inference is 
intended from this treatment that the third party is the employer for 
this or any other provision of the Code or related laws.
5. Government-sponsored Programs That are Eligible Employer-sponsored 
Plans
    The proposed regulations provide that a government-sponsored 
program (as described in Sec.  1.5000A-2(b)(2) of the proposed 
regulations) is not an eligible employer-sponsored plan. However, some 
individuals are eligible for minimum essential coverage under 
government-sponsored plans by reason of employment with the United 
States government. For example, 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 (Pub. L. 103-337; 10 U.S.C. 1587 note), is offered by an 
instrumentality of the Department of Defense to its employees. 
Accordingly, the final regulations provide that the

[[Page 53651]]

Nonappropriated Fund Health Benefits Program is a government-sponsored 
program and an eligible employer-sponsored plan. The Treasury 
Department and the IRS are considering whether other government-
sponsored programs are eligible employer-sponsored plans.

C. Plan in the Individual Market

    The proposed regulations provide that a 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. Commentators stated that this definition is 
ambiguous about whether qualified health plans are plans in the 
individual market. The final regulations clarify that qualified health 
plans offered through Exchanges are plans in the individual market.
    Another commentator asked whether a plan offered to one specific 
individual is a plan in the individual market. A plan offered to one 
specific individual is a plan in the individual market only if the plan 
is health insurance coverage under section 2791(b)(1) of the Public 
Health Service Act, is not short-term limited duration coverage, and is 
offered in the individual market within a state. The final regulations 
clarify the meaning of the term plan in the individual market by 
restating definitions of other essential terms.

D. Foreign Issuer Coverage

1. In General
    Under section 5000A(f)(4) and Sec.  1.5000A-1(b)(2) of the final 
regulations, an individual is treated as having minimum essential 
coverage for a month if the individual is a bona fide resident of a 
United States possession for the month, or 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. Section 911(d)(1)(B) is applicable to a U.S. citizen or 
U.S. resident (as defined in 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.
    A commentator expressed a concern that a United States citizen or 
national who resides outside the United States may be subject to the 
shared responsibility penalty even if the individual has health care 
coverage provided by a foreign health insurance issuer (sometimes 
referred to as a form of expatriate coverage) or the government of the 
foreign country where the individual resides. The commentator requested 
that individuals in this situation be exempt from section 5000A.
    Under section 5000A(f)(4), a United States citizen or national 
satisfying the requirements of section 911(d)(1) is deemed to have 
minimum essential coverage. If the individual does not satisfy those 
requirements, the remaining provisions of section 5000A apply. 
Accordingly, the final regulations do not adopt the recommendation.
    The same commentator and another commentator asked whether 
expatriate coverage or coverage provided by a foreign insurance issuer 
to foreign nationals lawfully present in the United States for an 
extended period of time is minimum essential coverage. The commentators 
acknowledged that some coverage provided by a foreign health insurance 
issuer is not offered in the small or large group market, or the 
individual market, within a state. However, the commentators noted that 
the foreign health care coverage may be substantially similar to other 
types of plans recognized as minimum essential coverage.
    Under section 1304(d) of the Affordable Care Act (42 U.S.C. 
18024(d)) and the final regulations, the term state means each of the 
50 states and the District of Columbia. Coverage or a plan provided by 
an issuer that is not offered within a state is neither an eligible 
employer-sponsored plan nor a plan in the individual market. 
Accordingly, the final regulations do not adopt this recommendation.
    However, to provide relief in the situations that the two 
commentators described, the HHS MEC regulations provide a process by 
which a sponsor of a health plan, whether domestic or foreign, may 
apply for recognition as minimum essential coverage under section 
5000A(f)(1)(E). See 45 CFR 156.604.
2. Territory of the United States
    A commentator questioned whether coverage offered by issuers 
located in territories of the United States is minimum essential 
coverage. Insured plans must be offered within a state to be treated as 
an eligible employer-sponsored plan or as a plan in the individual 
market. Section 1304(d) of the Affordable Care Act (42 U.S.C. 18024(d)) 
and the final regulations provide that the term state means each of the 
50 states and the District of Columbia. Consequently, in general, 
health insurance coverage and insured group health plans that are not 
offered within one of the 50 states or the District of Columbia are 
neither eligible employer-sponsored plans nor plans in the individual 
market.
    However, section 1323(a)(1) of the Affordable Care Act (42 U.S.C. 
18043(a)(1)) provides that a territory electing to establish an 
Exchange in accordance with part II of subtitle D of the Affordable 
Care Act is treated as a state for applying basic rules governing 
qualified health plans offered through Exchanges. As discussed earlier 
in this preamble, a qualified health plan offered through an Exchange 
is a plan in the individual market within a state. Accordingly, the 
final regulations clarify that a qualified health plan offered through 
an Exchange established by and within a territory of the United States 
under section 1323(a)(1) of the Affordable Care Act is a plan in the 
individual market within a state.

III. Exempt Individuals

A. Members of Recognized Religious Sects or Divisions

    Consistent with section 5000A(d)(2)(A), the proposed regulations 
provide that individuals who are members of a recognized religious sect 
or division of the sect 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 from an Exchange. Commentators recommended that section 
5000A(d)(2)(A) be narrowly construed to limit the ability of parents 
who qualify for this religious conscience exemption to apply for a 
religious conscience exemption on behalf of any minor children who, 
owing to their youth, should not be considered full members of a 
recognized religious sect or division of the sect.
    Section 5000A(d)(2)(A) does not make a distinction between full and 
less than full membership in a sect or division. Accordingly, the final 
regulations do not adopt this recommendation. However, as explained in 
the preamble to the proposed regulations, the section 5000A religious 
conscience exemption is administered by HHS through Exchanges. The HHS 
MEC regulations permit adult members of a sect or division to apply for 
the exemption on behalf of their minor children. See 45 CFR 155.600 
(definitions of applicant and application filer); 45 CFR 155.605(c)(1) 
(eligibility standards for religious conscience exemption). Those

[[Page 53652]]

regulations further provide, however, that once a child turns 21 years 
of age, to maintain the religious conscience exemption the child must 
reapply for the exemption and attest to membership individually. See 45 
CFR 155.605(c)(2).

B. Members of Health Care Sharing Ministries

    The proposed regulations provide an exemption for members of health 
care sharing ministries as defined in section 5000A(d)(2)(B)(ii). 
Commentators recommended that individuals seeking the exemption based 
on their membership in health care sharing ministries be required to 
demonstrate membership for every month of the taxable year for which 
they seek the exemption. The proposed regulations provide that 
eligibility for the exemption for members of a health care sharing 
ministry is determined monthly, and the final regulations retain this 
rule.

C. Exempt Noncitizens

    Section 5000A(d)(3) and the proposed regulations provide 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. The proposed regulations provide that, for 
this exemption, 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 either (1) a 
nonresident alien as defined in section 7701(b)(1)(B) for that taxable 
year or (2) does not have lawful immigration status in the United 
States (within the meaning of 45 CFR 155.20) for any day in the month.
    Many commentators requested guidance on how individuals claim the 
exemption for being not lawfully present in the United States and 
recommended several reporting methods for this exemption. The final 
regulations do not adopt any of the recommended reporting methods. 
However, guidance on claiming exemptions will be provided in forms, 
instructions, publications, or other guidance published by the IRS, and 
these comments will be considered in developing that guidance.
    Commentators also requested that the exemption for individuals not 
lawfully present in the United States apply to all members of a 
taxpayer's family if the taxpayer qualifies for the exemption. Section 
5000A applies its coverage requirement and exemptions on an individual 
basis, which is inconsistent with the commentators' recommendation. 
Accordingly, the final regulations do not adopt this suggestion.

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 of confinement.
    A commentator urged that those incarcerated while awaiting the 
final disposition of charges also be given an exemption on account of 
their incarceration. This recommendation is inconsistent with section 
5000A(d)(4), which distinguishes between individuals incarcerated while 
awaiting final disposition of charges and those incarcerated after the 
final disposition of charges. Accordingly, the final regulations do not 
adopt this suggestion.
    In the alternative, the commentator requested treating incarcerated 
individuals whose Medicaid benefits have been suspended as having 
minimum essential coverage. An individual incarcerated pending 
disposition of charges whose Medicaid benefits have been suspended 
remains enrolled in Medicaid, is entitled to receive benefits for 
healthcare provided outside the state prison system, and is not 
required to re-enroll in Medicaid at the end of incarceration. Thus, 
treating the individual as covered under Medicaid is consistent with 
Sec.  1.5000A-1(b)(1), which provides that an individual has minimum 
essential coverage for the month when 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. Accordingly, an individual incarcerated pending disposition 
of charges whose Medicaid benefits have been suspended is covered under 
minimum essential coverage, and no revision to the regulations is 
necessary to address the commentator's concern.

E. Individuals Who Cannot Afford Coverage

1. Household Income
    To determine affordability of coverage, section 5000A(e)(1)(A) and 
the proposed regulations require taxpayers to increase household income 
by the portion of the required contribution made through a salary 
reduction arrangement and excluded from gross income. The preamble to 
the proposed regulations notes that the information necessary to make 
the required adjustment may not be readily available to the employee or 
the IRS and requests comments on practicable ways, if any, for making 
the adjustment.
    A commentator stated that the information required is not readily 
available. The commentator recommended that, considering the limited 
effect of the required adjustment, the IRS postpone enforcement of the 
adjustment until a later year when the necessary information may become 
more readily available and when the effect of the adjustment may be 
accurately assessed.
    The portion of the required contribution made through a salary 
reduction arrangement that is excluded from gross income includes 
amounts that an employee pays out of the employee's salary on a pre-tax 
basis for minimum essential coverage under a cafeteria plan that is an 
eligible employer-sponsored plan. Although the information may not be 
readily available, generally it is possible for an employee to identify 
amounts paid through a salary reduction arrangement that are excluded 
from the individual's gross income. In addition, under the HHS MEC 
regulations, a hardship exemption is available for an individual who 
lacks access to affordable minimum essential coverage based on 
projected household income. An individual seeking this exemption must 
adjust projected household income by the amount paid through a salary 
reduction arrangement for minimum essential coverage that is excluded 
in the prior year. Accordingly, the final regulations do not adopt this 
recommendation.
    Several commentators suggested allowing an exemption or safe harbor 
for individuals whose income early in the taxable year appears to 
entitle them to the lack of affordable coverage exemption and who, as a 
result, do not obtain minimum essential coverage. If these individuals 
have large increases in income later in the year, they may be liable 
for the shared responsibility payment if no other exemption applies. 
The final regulations do not adopt this recommendation because it is 
not administrable. The IRS does not have the monthly income data 
necessary to verify eligibility for the proposed safe harbor or 
exemption. However, as explained in this preamble, the HHS MEC 
regulations provide for a prospective hardship exemption based on a 
lack of affordable coverage determined on the basis of projected 
household income. Individuals may mitigate potential adverse 
consequences of mid-year increases in household income by applying for 
this hardship exemption prospectively.

[[Page 53653]]

2. Required Contribution Percentage
    One commentator requested a special rule for determining the 
inflation adjustment of the required contribution percentage for low-
income taxpayers to provide relief if health care expenses grow more 
rapidly than incomes. Section 5000A(e)(1)(D) provides specific rules 
for annually calculating a uniform required contribution inflation 
adjustment. Accordingly, the final regulations do not adopt this 
suggestion.
    The commentator also requested a special rule to avoid requiring 
individuals to visit Exchanges to apply for a hardship exemption. Under 
section 5000A(e)(5), the authority to prescribe the procedures for 
applying for exemptions resides with the Secretary of HHS. Based on 
this authorization, the HHS MEC regulations provide guidance addressing 
which hardship exemptions must be acquired through an Exchange and 
which may be claimed directly on a Federal income tax return.
3. Required Contribution
a. In General
    A commentator recommended that individuals who are eligible for 
unaffordable coverage under an eligible employer-sponsored plan qualify 
for the lack of affordable coverage exemption only if coverage 
purchased through an Exchange would also be unaffordable. The 
commentator noted that those individuals might find affordable coverage 
under plans in the individual market and that, if so, they should be 
encouraged to enroll in them. Section 5000A(e)(1)(B) defines the 
required contribution for two discrete groups based on whether an 
individual is eligible for coverage under eligible employer-sponsored 
plans. An individual cannot be described in both groups. Thus, section 
5000A does not require an individual to test the affordability of 
coverage under both an eligible employer-sponsored plan and a plan in 
the individual market. Accordingly, the final regulations do not adopt 
this suggestion.
b. Required Contribution for Individuals Eligible for Coverage Under 
Eligible Employer-sponsored Plans
    The proposed regulations under section 36B published on May 3, 2013 
(78 FR 25909) (the proposed minimum value regulations) provide that 
amounts newly made available for the current plan year under a health 
reimbursement arrangement (HRA) that is integrated with an eligible 
employer-sponsored plan are counted toward the employee's required 
contribution in determining the affordability of the coverage if the 
employee may use the amounts only for premiums or may choose to use the 
amounts for either premiums or cost sharing. The preamble to the 
proposed minimum value regulations states that regulations under 
section 5000A will provide a similar rule for determining the effect of 
amounts newly made available under an HRA for each plan year on the 
determination of affordability of minimum essential coverage. It is 
anticipated that future guidance under section 5000A will address the 
treatment of employer contributions to HRAs in determining the required 
contribution in a manner consistent with the treatment of these 
contributions in final rulemaking under section 36B.
    The proposed regulations provide that a former employee eligible to 
enroll in continuation coverage is eligible for coverage under an 
eligible employer-sponsored plan only if the former employee enrolls in 
it. In addition to extending this rule to retiree coverage, the final 
regulations clarify that an individual eligible for continuation or 
retiree coverage because of a relationship to a former employee is 
treated in the same manner as the former employee. Therefore, 
individuals eligible for continuation or retiree coverage who do not 
enroll in it, and who are not eligible for coverage under another 
eligible employer-sponsored plan, determine qualification for the lack 
of affordable coverage exemption under the rules that apply to 
individuals ineligible for coverage for eligible employer-sponsored 
plans.
c. Required Contribution for Individuals Ineligible for Coverage Under 
Eligible Employer-sponsored Plans
    To determine the required contribution for individuals who are 
ineligible for coverage under eligible employer-sponsored plans, the 
proposed regulations provide that the required contribution is the 
premium for the applicable plan reduced by the amount of the credit 
allowable under section 36B. The proposed regulations further provide 
that, in general, the applicable plan is the lowest cost bronze plan 
available in the Exchange serving the rating area where the individual 
resides that would cover all members of the individual's nonexempt 
family taking into account the rating factors (for example, an 
individual's age) that an Exchange would use to determine the cost of 
coverage. The proposed regulations allow taxpayers to make an 
irrevocable election to use a simplified method to determine the 
premium for the applicable plan.
    One commentator requested that the election to use the simplified 
method to determine the premium for the applicable plan, when a plan is 
not offered that covers members of the entire tax household, be 
revocable. The Treasury Department and the IRS are considering the 
comment, as well as alternative simplified methods of identifying the 
premium for the applicable plan. Accordingly, the final regulations 
remove the simplified method rule that was included in the proposed 
regulations and reserve on providing simplified methods for identifying 
the premium for the applicable plan.
    A commentator asked that characteristics of individuals in a 
taxpayer's nonexempt family taken into account in identifying the 
applicable plan expressly include tobacco use. The rule is intended to 
reflect as accurately as possible a taxpayer's actual premium amount. 
Therefore, the final regulations clarify that the characteristics used 
to identify the applicable plan include tobacco use.
    It is anticipated that future HHS guidance will specify that when 
determining eligibility for the hardship exemption for individuals who 
lack affordable coverage based on projected income described in 45 CFR 
155.605(g)(2), the Exchange will calculate advance payments of the 
premium tax credit using the rules specified in the regulations under 
section 36B, providing that individuals who have minimum essential 
coverage are excluded from the computation of the applicable benchmark 
plan. This treatment will ensure that Exchanges can reuse existing 
advance payment functionality instead of having to develop additional 
functionality for the sole purpose of supporting this exemption.
d. Wellness Program Incentives
    The proposed regulations do not address wellness program 
incentives. Commentators recommended determining an individual's 
required contribution without regard to any wellness program incentives 
that, if received, would lower premiums. A commentator asked that 
premiums for the applicable plan for an individual residing in a rating 
area in a state participating in the Individual Market Wellness Program 
Demonstration Project described in section 2705(l) of the Public Health 
Service Act (42 U.S.C. 300gg-4(l)) disregard any premium-based wellness 
incentive requirements, including incentives relating to tobacco use. 
The proposed minimum value regulations disregard wellness program

[[Page 53654]]

incentives, except those related to tobacco use, in determining an 
employee's required contribution under section 36B(c)(2)(C)(i). It is 
anticipated that future guidance under section 5000A will address the 
treatment of wellness program incentives in determining the required 
contribution in a manner consistent with the treatment of these 
incentives in final rulemaking under section 36B.

F. Household Income Below the Return Filing Threshold

    The proposed regulations exempt an individual for a month in a 
calendar year if the individual's household income for the taxable year 
is less than the applicable filing threshold. The proposed regulations 
provide that this below filing threshold exemption may be claimed on an 
income tax return. Under the proposed regulations an individual is not 
required to file an income tax return to claim this exemption. One 
commentator requested that a taxpayer with household income below the 
applicable filing threshold who files a return remain eligible for this 
exemption. The final regulations retain the rule that an individual is 
not required to file a Federal income tax return to claim this 
exemption and clarify that a taxpayer with household income below the 
applicable filing threshold who files a Federal income tax return may 
claim the exemption on the filed return.
    The same commentator inquired whether the filing threshold rule for 
dependents in Sec.  1.5000A-3(f)(2)(ii) of the proposed regulations 
affects the definition of household income in Sec.  1.5000A-1(d)(7). 
Under Sec.  1.5000A-3(f)(2)(ii) a dependent's applicable filing 
threshold is the same as the threshold for the taxpayer claiming the 
dependent. Section 5000A(e)(2) allows an exemption for an individual 
whose household income is less than the amount of gross income 
specified in section 6012(a)(1) with respect to the taxpayer. The 
taxpayer referred to in section 5000A(e)(2) is the taxpayer claiming 
the dependent. Accordingly, a dependent claimed for an exemption 
deduction uses the family's household income and the taxpayer's 
applicable filing threshold in determining eligibility for the below 
filing threshold exemption. This treatment has no effect on the 
household income definition.

G. Members of Indian Tribes

    The proposed regulations provide an exemption for individuals who 
are members of federally-recognized Indian tribes. Many commentators 
were concerned that this exemption was overly restrictive and 
recommended that the final regulations broaden the exemption to include 
all individuals who are eligible to receive services through the Indian 
Health Service, a tribe or tribal organization clinic, or an urban 
Indian organization (collectively referred to as I/T/U services). 
Alternatively, commentators asked that coverage under I/T/U services be 
recognized as minimum essential coverage solely for section 5000A or 
that these individuals be eligible for a hardship exemption from 
Exchanges.
    The final regulations do not define coverage under I/T/U services 
as minimum essential coverage because section 5000A does not 
specifically identify I/T/U services as minimum essential coverage. 
However, following consultation among HHS, tribal groups, and the 
Treasury Department and the IRS, the HHS MEC regulations provide a 
hardship exemption for an individual who is not a member of a 
federally-recognized Indian tribe, but who is eligible for services 
through an Indian health care provider, as defined in 42 CFR 447.50, or 
is eligible for services through Indian Health Service in accordance 
with 25 U.S.C. 1680c(a), (b), or (d)(3). See 45 CFR 155.605(g)(6).
    Several commentators also requested that individuals be allowed to 
claim the hardship exemption for those eligible for I/T/U services on 
their income tax returns. The final regulations do not adopt this 
suggestion because section 5000A(e)(5) provides HHS, through Exchanges, 
with the authority to grant hardship exemptions not delegated to the 
IRS.

H. Short Coverage Gap

    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. 
Further, in determining whether a gap in coverage qualifies as a short 
coverage gap, the length of the period without minimum essential 
coverage is measured by reference to calendar months (for example, 
January or February) in conjunction with the one day 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 applying the short coverage gap exemption.
    Some commentators recommended making the short coverage gap 
exemption available to cover an aggregate period of coverage of less 
than three months, regardless of whether the period was continuous. The 
commentators noted that those who switched jobs frequently might have 
numerous short gaps in coverage throughout the year. The commentators' 
recommendation is inconsistent with section 5000A(e)(4)(B)(iii), which 
limits the short coverage gap exemption to one continuous period of 
less than three months. Accordingly, the final regulations do not adopt 
this suggestion. However, if a taxpayer has multiple short coverage 
gaps due to extended waiting periods after switching employment or 
because of other circumstances that prevent the taxpayer from obtaining 
coverage, the taxpayer may be eligible for a hardship or other 
exemption available through an Exchange. See 45 CFR 155.605.
    Section 5000A(e)(4)(B)(i) provides that, in general, the length of 
a continuous period without coverage is determined without regard to 
the calendar years in which the period occurs. However, section 
5000A(e)(4) expressly authorizes the Secretary of the Treasury to 
prescribe rules for the collection of the shared responsibility payment 
in cases in which a continuous period includes months in more than one 
taxable year. The proposed regulations provide rules for a coverage gap 
that straddles two taxable years. For the earlier taxable year, the 
coverage gap terminates at the end of the earlier taxable year. For the 
later taxable year, the coverage gap continues from the earlier taxable 
year and terminates when the individual no longer lacks minimum 
essential coverage. Thus, a taxpayer who lacked minimum essential 
coverage in November and December of one year and January and February 
of the following year has a coverage gap of two months in the earlier 
taxable year and four months in the later taxable year.
    Some commentators stated that the coverage gap in the earlier year 
should include months in the later year in which an individual has no 
minimum essential coverage. Other commentators recommended that all 
continuous periods in a year begin no earlier than January 1, thereby 
ignoring any gaps in coverage in the preceding year. The final 
regulations adopt neither suggestion. To assist taxpayers in timely 
filing returns and in the interests of efficient tax administration, 
the final regulations provide that a continuous period terminates no 
later than the last day of a taxable year. In addition, for the later 
year when the same administrative concerns do not apply, consistent 
with section 5000A(e)(4)(B)(i), the final regulations provide that a 
continuous

[[Page 53655]]

period may include months in an earlier year.
    Under the proposed regulations an individual has minimum essential 
coverage for a month in which the individual is otherwise exempt from 
section 5000A for the short coverage gap exemption. One commentator 
asked whether gaps in coverage in 2013 affect the measurement of gaps 
in coverage beginning in January 2014. Section 5000A is effective for 
months beginning on or after January 1, 2014. Accordingly, the final 
regulations provide that gaps in coverage prior to January 1, 2014, are 
not taken into account when measuring the length of a coverage gap in 
2014.
    A commentator requested that any probationary period during which 
an individual is enrolled in minimum essential coverage but not yet 
entitled to benefits under the plan not be taken into account in 
determining the length of a continuous period for the short coverage 
gap exemption. As discussed in this preamble with regard to a similar 
comment concerning a taxpayer who submitted an application for Medicaid 
but is awaiting approval for enrollment, section 5000A(a) requires that 
an individual have minimum essential coverage for the month. Unless 
retroactive coverage is provided, an applicant awaiting approval for 
enrollment is not covered until approval of the application. Therefore, 
the final regulations do not adopt this recommendation. However, an 
individual who is unable to obtain coverage in a timely manner because 
of a lengthy approval process may be otherwise eligible for a hardship 
or other exemption through an Exchange. See 45 CFR 155.605.

I. Additional Hardship Exemptions

    A number of commentators proposed that the IRS adopt additional 
hardship exemptions to address specific situations. Authority to define 
circumstances giving rise to a hardship exemption, as well as authority 
to grant hardship exemptions in individual cases, resides with HHS. HHS 
has provided guidance on the hardship exemption in the HHS MEC 
regulations.
    Section 155.605(g)(3) of the HHS MEC regulations provides that the 
IRS may allow a taxpayer to claim a hardship exemption for a calendar 
year if the taxpayer was not required to file an income tax return 
because the taxpayer's gross income was below the applicable return 
filing threshold but nevertheless filed a return, claimed a dependent 
with a return filing requirement and, as a result, had household income 
that exceeds the applicable filing threshold.
    Section 155.605(g)(5) of the HHS MEC regulations provides that the 
IRS may allow a taxpayer to claim a hardship exemption for employed 
family members who are eligible for affordable employer-sponsored self-
only coverage, but for whom the aggregate cost of employer-sponsored 
coverage for all employed members of the family is unaffordable.
    The information required to determine eligibility for these 
hardship exemptions is available only at the time of tax filing. 
Accordingly, the final regulations provide that eligible taxpayers may 
claim these two hardship exemptions on a Federal income tax return.

J. Claiming Exemptions From the Shared Responsibility Payment

    Section 1.5000A-3(k) of the proposed regulations addresses which 
exemptions may be certified by an Exchange or claimed on a return, and 
how to claim exemptions. The HHS MEC regulations address how to request 
certification for an exemption from an Exchange. The manner for 
claiming an exemption on a return is more appropriately addressed 
through IRS forms, instructions, or other publications. Therefore, the 
final regulations do not provide information on how to claim an 
exemption on a Federal income tax return.

IV. Accuracy-Related Penalties

    One commentator expressed concern that taxpayers would have 
difficulty accurately calculating the shared responsibility payment. 
Emphasizing the complexity of the calculation, the commentator 
requested that the IRS not impose accuracy-related penalties under 
section 6662 for underpayments caused by erroneous section 5000A 
computations.
    Section 6662 does not apply to a section 5000A shared 
responsibility payment. The accuracy-related penalty of section 6662(a) 
applies only to underpayments of tax, defined in section 6664. The 
section 5000A shared responsibility payment is not taken into 
consideration in determining whether there is an underpayment of tax 
under section 6664. Therefore, the shared responsibility payment is not 
taken into account under section 6662. Forms, instructions, 
publications, or other guidance to be published by the IRS are 
anticipated to assist taxpayers in determining the amount of an 
applicable shared responsibility payment.

V. Effective/Applicability Date

    These final regulations apply to taxable years ending after 
December 31, 2013.

Special Analyses

    It has been determined that this Treasury decision 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. Section 553(b) of the Administrative 
Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, 
and, because the regulations do not impose a collection of information 
requirement on small entities, the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the 
notice of proposed rulemaking that preceded these final regulations was 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business, and no 
comments were received.

Drafting Information

    The principal authors of these final regulations are Sue-Jean Kim 
and John B. Lovelace of the Office of Associate Chief Counsel (Income 
Tax and Accounting). Other personnel from the IRS and the Treasury 
Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are amended 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.

[[Page 53656]]

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) Employee.
    (3) Exchange.
    (4) Family.
    (5) Family coverage.
    (6) Group health insurance coverage.
    (7) Group health plan.
    (8) Health insurance coverage.
    (9) Health insurance issuer.
    (10) Household income.
    (i) In general.
    (ii) Modified adjusted gross income.
    (11) Individual market.
    (12) Large and small group market.
    (13) Month.
    (14) Qualified health plan.
    (15) Rating area.
    (16) Self-only coverage.
    (17) Shared responsibility family.
    (18) State.
Sec.  1.5000A-2 Minimum essential coverage.
    (a) In general.
    (b) Government-sponsored program.
    (1) In general.
    (i) Medicare.
    (ii) Medicaid.
    (iii) Children's Health Insurance Program.
    (iv) TRICARE.
    (v) Veterans programs.
    (vi) Peace Corp program.
    (vii) Nonappropriated Fund Health Benefits Program.
    (2) Government-sponsored program special rules.
    (i) Coverage authorized under Section 1115 of the Social Security 
Act.
    (ii) Medicaid for the medically needy programs.
    (iii) Limited benefits TRICARE programs.
    (c) Eligible employer-sponsored plan.
    (1) In general.
    (2) Government-sponsored program generally not an eligible 
employer-sponsored plan.
    (d) Plan in the individual market.
    (1) In general.
    (2) Qualified health plan offered by an Exchange.
    (e) Grandfathered health plan.
    (f) Other coverage that qualifies as minimum essential coverage.
    (g) Excepted benefits not minimum essential coverage.
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) Multiple eligibility.
    (C) Special rule for post-employment 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) Employer contributions to health reimbursement arrangements.
    (E) Wellness program incentives.
    (iii) 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) Optional 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.
    (3) Manner of claiming the exemption.
    (g) Members of Indian tribes.
    (h) Individuals with hardship exemption certification.
    (1) In general.
    (2) Hardship exemption certification.
    (3) Hardship exemptions that may be claimed on a return.
    (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.
    (4) Examples.
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

[[Page 53657]]

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 the 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. Prior to the adoption, G resides with H, an unmarried 
individual, with H providing all of G's support. For 2016 G meets 
all requirements under section 152 to be E and F's dependent, and 
not H's dependent.
    (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, and, for 2016, G meets all requirements under 
section 152 to be H's dependent, and not E and F's dependent.
    (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) Employee. Employee includes former employees.
    (3) Exchange. Exchange has the same meaning as in 45 CFR 155.20.
    (4) 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.
    (5) Family coverage. Family coverage means health insurance that 
covers more than one individual.
    (6) 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)).
    (7) 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)).
    (8) Health insurance coverage. Health insurance coverage has the 
same meaning as in section 2791(b)(1) of the Public Health Service Act 
(42 U.S.C. 300gg-91(b)(1)).
    (9) Health insurance issuer. Health insurance issuer has the same 
meaning as in section 2791(b)(2) of the Public Health Service Act (42 
U.S.C. 300gg-91(b)(2)).
    (10) 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)(4) of 
this section; and
    (2) Are required to file a Federal income tax return for the 
taxable year.

[[Page 53658]]

    (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.
    (11) Individual market. Individual market has the same meaning as 
in section 1304(a)(2) of the Affordable Care Act (42 U.S.C. 
18024(a)(2)).
    (12) 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)).
    (13) Month. Month means calendar month.
    (14) 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)).
    (15) Rating area. Rating area has the same meaning as in Sec.  
1.36B-1(n).
    (16) Self-only coverage. Self-only coverage means health insurance 
that covers one individual.
    (17) 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.
    (18) State. State means each of the 50 states and the District of 
Columbia.


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--(1) In general. Except as 
provided in paragraph (2), government-sponsored program means any of 
the following:
    (i) Medicare. The Medicare program under part A of Title XVIII of 
the Social Security Act (42 U.S.C. 1395c and following sections);
    (ii) Medicaid. The Medicaid program under Title XIX of the Social 
Security Act (42 U.S.C. 1396 and following sections), other than--
    (A) 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));
    (B) Optional coverage of tuberculosis-related services under 
section 1902(a)(10)(A)(ii)(XII) of the Social Security Act (42 U.S.C. 
1396a(a)(10)(A)(ii)(XII));
    (C) Coverage of pregnancy-related services under section 
1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) of the Social Security Act 
(42 U.S.C. 1396a(a)(10)(A)(i)(IV), (a)(10)(A)(ii)(IX)); or
    (D) Coverage limited to treatment of emergency medical conditions 
in accordance with 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)).
    (iii) Children's Health Insurance Program. The Children's Health 
Insurance Program (CHIP) under Title XXI of the Social Security Act (42 
U.S.C. 1397aa and following sections);
    (iv) TRICARE. Medical coverage under chapter 55 of Title 10, 
U.S.C., including coverage under the TRICARE program.
    (v) Veterans programs. The following health care programs under 
chapter 17 or 18 of Title 38, U.S.C.:
    (A) The medical benefits package authorized for eligible veterans 
under 38 U.S.C. 1710 and 38 U.S.C. 1705;
    (B) The Civilian Health and Medical Program of the Department of 
Veterans Affairs (CHAMPVA) authorized under 38 U.S.C. 1781; and
    (C) 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.
    (vi) Peace Corp program. A health plan under section 2504(e) of 
Title 22, U.S.C. (relating to Peace Corps volunteers); and
    (vii) Nonappropriated Fund Health Benefits Program. 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 (Pub. L. 103-337; 10 U.S.C. 1587 
note).
    (2) Government-sponsored program special rules--(i) Coverage 
authorized under Section 1115 of the Social Security Act. [Reserved]
    (ii) Medicaid for the medically needy programs. [Reserved]
    (iii) Limited benefits TRICARE programs. [Reserved]
    (c) Eligible employer-sponsored plan--(1) In general. Eligible 
employer-sponsored plan means, with respect to any employee:
    (i) Group health insurance coverage offered by, or on behalf of, an 
employer to the employee that is--
    (A) 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)));
    (B) Any other plan or coverage offered in the small or large group 
market within a State;
    (C) A grandfathered health plan (within the meaning of paragraph 
(e) of this section) offered in a group market; or
    (ii) A self-insured group health plan under which coverage is 
offered by, or on behalf of, an employer to the employee.
    (2) Government-sponsored program generally not an eligible 
employer-sponsored plan. Except for the program identified in paragraph 
(b)(7) of this section, a government-sponsored program described in 
paragraph (b) of this section is not an eligible employer-sponsored 
plan.
    (d) Plan in the individual market--(1) In general. Plan in the 
individual market means health insurance coverage offered to 
individuals in the individual market within a state, other than short-
term limited duration insurance within the meaning of section 
2791(b)(5) of the Public Health Service Act (42 U.S.C. 300gg-91(b)(5)).
    (2) Qualified health plan offered by an Exchange. A qualified 
health plan offered by an Exchange is a plan in the individual market. 
If a territory of the United States elects to establish an Exchange 
under section 1323(a) and (b) of the Affordable Care Act (42 U.S.C. 
18043(a)(1), (b)), a qualified health plan offered by that Exchange is 
a plan in the individual market.
    (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 coverage that qualifies as minimum essential coverage. 
Minimum essential coverage includes any plan or arrangement recognized 
by the Secretary of Health and Human Services, in coordination with the 
Secretary of the Treasury, as minimum essential coverage.
    (g) Excepted benefits not minimum essential coverage. Minimum 
essential coverage does not include any health insurance coverage that 
consists solely

[[Page 53659]]

of excepted benefits 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 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)), 45 CFR 155.605(c), and 45 CFR 155.615(b) and 
certifies that an individual is--
    (i) A member of a recognized religious sect or division of the sect 
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) 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 for a new employee or an individual who enrolls during a 
special enrollment period, the remainder of a 12-month coverage 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.
    (B) Multiple eligibility. 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.
    (C) Special rule for post-employment coverage. A former employee or 
an individual related to a former employee, who may enroll in 
continuation coverage required under Federal law or a state law that 
provides comparable continuation coverage, or in retiree coverage under 
an eligible employer-sponsored plan, 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 through 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

[[Page 53660]]

described in paragraph (e)(3)(ii)(A) or (e)(3)(ii)(B) of this section, 
affordability under this paragraph (e)(3) 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 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) Employer contributions to health reimbursement arrangements. 
[Reserved]
    (E) Wellness program incentives. [Reserved]
    (iii) 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% 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 for 2016 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% 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% 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% 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% 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 through 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)(4)) 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 or tobacco use) 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 covering 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 that would cover in the aggregate all 
the individuals in the individual's nonexempt family. For instance, 
coverage offered through the Exchange in a rating area might not cover 
a family member living in different rating area or a single policy 
might not cover all the members in a taxpayer's household.
    (ii) Optional simplified method for applicable plan identification. 
[Reserved]

[[Page 53661]]

    (C) Credit allowable under section 36B. For purposes of paragraph 
(e)(4)(ii)(A) of this section, maximum amount of any credit 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% 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% 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% 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% 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% 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 (e)(1) of this 
section, M, N, P, and Q have affordable coverage for 2016 because 
their required contribution ($2,600) does not exceed 8% 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. 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% 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% 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% 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% of their household income 
($4,000).
    (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 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.
    (3) Manner of claiming the exemption. A taxpayer is not required to 
file a Federal income tax return solely to claim the exemption 
described in this paragraph (f). If a taxpayer has a household income 
below the applicable filing threshold and nevertheless files a Federal 
income tax return, the taxpayer may claim the exemption described in 
this paragraph (f) on the return.
    (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

[[Page 53662]]

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)), 45 CFR 
155.605(g)(1), (g)(2), (g)(4) and (g)(6), 45 CFR 155.610(i), and 45 CFR 
155.615(f), and certifies that an individual has suffered a hardship 
(as that term is defined in 45 CFR 155.605(g)) affecting the capability 
to obtain minimum essential coverage.
    (3) Hardship exemptions that may be claimed on a return. A taxpayer 
who meets the requirements of 45 CFR 155.605(g)(3) or 45 CFR 
155.605(g)(5) may claim a hardship exemption for a calendar year on a 
Federal income tax return.
    (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 are 
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. For purposes of 
paragraph (j) of this section, a continuous period begins no earlier 
than January 1, 2014.
    (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 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 not less than 3 months and, 
therefore, January is not a part of 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 minimum essential coverage 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.


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 before 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

[[Page 53663]]

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), 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 down 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 $250,000. H and J's applicable filing 
threshold is $24,000. The annual national average bronze plan 
premium for a family of 5 (3 adults, 2 children) is $15,000.
    (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 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 $5,650 (($250,000-$24,000) 
x 0.025). Therefore, under paragraph (b)(1) of this section, the 
monthly penalty amount is $470.83 (the greater of $173.75 ($2,085/
12) or $470.83 ($5,650/12)).
    (iii) The sum of the monthly penalty amounts is $5,650 ($470.83 
x 12). 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 $5,650 (the lesser of $5,650 or $15,000).
    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 (2 adults, 2 
children) is $10,000.
    (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 $5,650 
(($250,000-$24,000) x 0.025). Therefore, under paragraph (b)(1) of 
this section, for January through June the monthly penalty amount is 
$470.83 (the greater of $173.75 ($2,085/12) or $470.83 ($5,650/12)). 
The monthly penalty amount for July through December is $470.83 (the 
greater of $173.75 ($2,085/12) or $470.83 ($5,650/12)).
    (iv) The sum of the monthly penalty amounts is $5,650 ($470.83 x 
12). The sum of the monthly national average bronze plan premiums is 
$12,500 ((($10,000/12) x 6) + (($15,000/12) x 6))). Therefore, under 
paragraph (a) of this section, the shared responsibility payment 
imposed on H and J for 2016 is $5,650 (the lesser of $5,650 or 
$12,500).
    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. S, T, and U do not 
enroll in, and as a result are not eligible to receive benefits 
under, affordable employer-sponsored coverage offered by T's 
employer for 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 
$11,000.
    (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 $11,000 ($11,000/12 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 $11,000).

[[Page 53664]]

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 period of limitations 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. 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 
on any property of the taxpayer, or levy on any property of the 
taxpayer for the 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) and its corresponding regulations.
    (c) Effective/applicability date. This section and Sec. Sec.  
1.5000A-1 through 1.5000A-4 apply for months beginning after December 
31, 2013.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 5.The authority citation for part 602 continues to read as 
follows:

    Authority:  26 U.S.C. 7805.


0
Par. 6. In Sec.  602.101, paragraph (b) is amended by adding an entry 
in numerical order to the table to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       Control No.
------------------------------------------------------------------------
 
                                * * * * *
1.5000A-3...............................................       1545-0074
1.5000A-4...............................................       1545-0074
 
                                * * * * *
------------------------------------------------------------------------


 Heather C. Maloy,
Acting Deputy Commissioner for Services and Enforcement.
    Approved: August 26, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-21157 Filed 8-27-13; 11:15 am]
BILLING CODE 4830-01-P