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07-18-2013 Internal Revenue Service Provides Relief to Certain Individuals from the Shared-Responsibility Payment

On June 26, 2013, the Internal Revenue Service released Notice 2013-42 to provide transitional relief from the shared responsibility payment under section 5000A of the Internal Revenue Code of 1986, as amended ("Code") for certain individuals who are eligible to enroll in an employer-sponsored health plan that has a plan year that does not coincide with the calendar year. The relief is available only if the plan year for an employer's health insurance plan begins in 2013 and ends in 2014.

Section 5000A was enacted as part of the Patient Protection and Affordable Care Act, as amended, which is the federal health care reform law. Beginning January 1, 2014, Section 5000A of the Code requires all non-exempt individuals to maintain minimum essential coverage for themselves and their non-exempt family members. If an individual does not maintain minimum essential coverage, he or she must pay a shared responsibility payment with his or her federal income tax return.

An employer's health insurance plan may use a plan year that does not coincide with the calendar year. For example, the plan year for an employer's health insurance plan may be July 1 to June 30. Generally, health insurance plans do not allow employees to enroll in the plan after the beginning of a plan year unless certain triggering events occur. These plan provisions could make it difficult for employees to enroll in employer-provided coverage before 2014, placing them at risk of being liable for a shared responsibility payment. Notice 2013-42 addresses this situation and provides relief from the shared responsibility payment. Without the relief provided in the notice, many employees eligible to enroll in non-calendar year plans would need to enroll in the plans in 2013 in order to avoid the shared responsibility payment that becomes effective for months in 2014. The transitional relief begins in January 2014 and continues through the month in which the 2013-2014 plan year ends.

One example provided in the notice involves an unmarried taxpayer with a 5-year-old daughter. The taxpayer is eligible to enroll in a non-calendar year employer-sponsored health plan offered by the taxpayer's employer, whose plan year begins on August 1, 2013 and ends on July 31, 2014. If neither the taxpayer nor his daughter enroll in the health plan for the 2013-2014 plan year, both are eligible for transitional relief exempting them from the shared responsibility payment for January 2014 through July 2014.

Fraser Stryker is a leader in employee benefits and tax law. Attorneys in the Firm's Employee Benefits Practice Group advise businesses, governments, and nonprofit/tax-exempt organizations on a wide variety of tax and employee benefits matters, transactions, and litigation.

Fraser Stryker helps employers implement and maintain innovative and cost-effective employee benefit plans that attract and retain top talent. Attorneys on the Firm's Patient Protection and Affordable Care Act & Health Care Reform Response Team advise businesses, political subdivisions and other governmental entities, health care organizations, and tax-exempt entities on all aspects of health care reform implementation and compliance.

For more information, or if you would like to discuss the Act or the employer shared responsibility requirements, please contact Nicole R. Konen, or Emily Wischnowski.

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This article is provided by Fraser Stryker for general informational purposes and is not intended to be and should not be construed as legal advice on any specific facts or circumstances.

Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any matters addressed herein.