Unless exempt, the ACA requires that all individuals carry minimum essential coverage or make a shared responsibility payment. Individuals with health insurance coverage should ascertain that their coverage satisfies the ACA’s minimum essential coverage requirements. Individuals without minimum essential coverage may be liable for a shared responsibility payment unless exempt. Individuals who obtain health insurance coverage through the ACA Marketplace may be eligible for the Code Sec. 36B premium assistance tax credit.


The coverage requirement applies separately to each month. Individuals are treated as having minimum essential coverage for a month as long as the individual has coverage for at least one day during that month.

A number of exemptions are available to qualified individuals:

  • ▪ Religious conscience exemption
  • ▪ Hardship exemption
  • ▪ Exemption for members of federally-recognized Native American nations
  • ▪ Exemption for members of a health care sharing ministry
  • ▪ Exemption for incarcerated individuals
  • ▪ Short coverage gap exemption
  • ▪ Exemption for individuals not lawfully present in the U.S.


Generally, a gap in coverage that lasts less than three months qualifies as a short coverage gap. If an individual has more than one short coverage gap during a year, the short coverage gap exemption only applies to the first gap.

Individual Shared Responsibility Payment

For 2015, the individual shared responsibility payment is the greater of two percent of household income that is above the tax return filing threshold for the individual’s filing status, or the individual’s flat dollar amount, which is $325 per adult and $162.50 per child, limited to a family maximum of $975, but capped at the cost of the national average premium for a bronze level health plan available through the Marketplace in 2015. For 2015, the monthly national average premium for qualified health plans that have a bronze level of coverage and are offered through the Marketplace is $207 per individual and $1,035 for a shared responsibility family with five or more members.


Open enrollment for coverage through the Health Insurance Marketplace for 2015 has closed. However, some qualifying life events may make an individual eligible for non-filing season special enrollment. An individual who experiences a complex situation may also qualify for special enrollment.

Health Flexible Spending Arrangements

Contributions to health flexible spending arrangements (health FSAs) are capped under the ACA at $2,500 (indexed for inflation). Any salary reductions in excess of the cap subject an employee to tax on distributions from the health FSA. For 2015 and again for 2016, the cap is $2,550.


Health FSA balances are use-it or lose-it each year, except to the extent a plan provide a $500 carryover.




PACE Act. In October 2015, Congress passed the Protecting Affordable Coverage for Employees (PACE) Act, which maintains the current language in the ACA that defines “small employer” as an employer with fewer than 50 full-time employees on average during the prior calendar year for purposes of the small group health market. The PACE Act, however, gives states the option to apply the original definition of small employer to employers with 51 to 100 employees for purposes of the small group health market. Employers should check state law.


Only small employers can be qualified employers who may offer a cafeteria plan under Code Sec. 125 that permits their employees to enroll in a qualified health plan through the health insurance marketplace. The PACE Act may therefore have consequences for any large employers with between 51 and 100 employees that were planning to take advantage of this provision after they became “small employers” after January 1, 2016.


Traditional year-end planning techniques include:

Income Acceleration

(for postponement to 2016, delay the following actions):

  • ▪ Sell outstanding installment contracts
  • ▪ Receive bonuses before January
  • ▪ Sell appreciated assets
  • ▪ Redeem U.S. Savings Bonds
  • ▪ Declare special dividend
  • ▪ Complete Roth conversions
  • ▪ Accelerate debt forgiveness income
  • ▪ Maximize retirement distributions
  • ▪ Accelerate billing and collections
  • ▪ Avoid mandatory like-kind exchange treatment
  • ▪ Take corporate liquidation distributions in 2015

Deductions/Credit Acceleration

(for deferral, take contrary actions):

  • ▪ Bunch itemized deductions into 2015/Standard deduction into 2016
  • ▪ Don’t delay bill payments until 2016
  • ▪ Pay last state estimated tax installment in 2015
  • ▪ Don’t delay economic performance
  • ▪ Watch AGI limitations on deductions/credits
  • ▪ Watch net investment interest restrictions
  • ▪ Match passive activity income and losses

Health Reimbursement Arrangements. Many small businesses have traditionally provided a health benefit to their employees through a health reimbursement arrangement (HRA). Following passage of the ACA, the IRS released Notice 2013-54, which described these arrangements as employer payment plans. Therefore, they are considered to be group health plans subject to the ACA’s market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Failure to comply with the ACA’s market reforms triggers excise taxes under Code Sec. 4980D.


The IRS provided transition relief (Notice 2015-17) from the excise taxes to qualified small employers but the relief expired after June 30, 2015. Bipartisan legislation has been introduced in the House and Senate (Small Business Health Care Relief Act, HR 2911; Sen. 1697) to provide permanent relief for small employers.

Small Business Health Care Tax Credit. Small employers with no more than 25 full-time equivalent employees may qualify for a special tax credit to help offset the cost of health insurance for their employees. The employer must pay average annual wages of no more than $50,000 per employee (indexed for inflation) and maintain a qualifying health care insurance arrangement.


The small employer tax credit may be carried back or forward. Small businesses that do not owe tax may take advantage of the credit in a prior year or a future year, if eligible.