Non-Calendar Year End Plans – Individual Mandate Exception
Beginning January 1, 2014, a tax is imposed on the individual who fails to have health care coverage. An individual who has employer provided health care coverage that meets certain standards will satisfy the mandate to have coverage.
Many employer-sponsored plans have a non-calendar plan year. Eligible employer-sponsored plans typically do not permit employees to enroll in the plan after the beginning of a plan year. An employee who is eligible for coverage in an employer's non-calendar year plan may have not been participating in coverage as of January 1, 2014 when the individual mandate applies and as a consequence, could be exposed to payment of the individual mandate tax.
IRS Notice 2013-42 surprisingly provides some relief from the individual mandate to have health care coverage for individuals who are eligible to enroll in certain eligible employer-sponsored non-calendar year health plans if the plan year begins in 2013 and ends in 2014. The relief is tied to an exception to the shared responsibility tax imposed by Internal Revenue Code ("IRC") § 4980H on employers that fail to offer health care coverage. Under proposed regulations issued by the IRS regarding the IRC § 4980H shared responsibility tax, if an applicable large employer offers to an employee coverage that is affordable and provides minimum value for the first non-calendar year plan year beginning in 2014 (2014-2015 plan year), the employer will not be liable for the IRC § 4980H tax with respect to that employee for the period prior to the first day of the 2014-2015 plan year if the employee was eligible to participate in the plan as of December 27, 2012. This shared responsibility tax exception was released well before the release July 2, 2013 stating that the government will not be enforcing the shared responsibility tax during 2014.
The relief given to employers from the shared responsibility tax, in addition to the "normal" restraint against mid-year enrollments, means that an employer sponsoring a fiscal year plan is unlikely to allow enrollment in the employer's health care benefits by the employee who is not participating in the health care benefits plan as of January 1, 2014. Hence, as of January 1, 2014, that employee would have exposure to the individual mandate tax.
Consequently, the government recognized it would be appropriate to grant some relief to an employee who is eligible to enroll in a non-calendar year eligible employer-sponsored plan with a plan year beginning in 2013 and ending in 2014 (the 2013-2014 plan year). That employee will not be liable for the § 5000A individual mandate tax beginning in January 2014 and continuing through the month in which the 2013-2014 plan year ends.
This will link to Notice 2013-42: http://www.irs.gov/pub/irs-drop/n-13-42.pdf