By - September 29, 2020

Preparing for the California Individual Healthcare Mandate

california individual mandate healthcare

The California Individual Healthcare Mandate (SB-78), which requires residents to maintain qualifying coverage throughout the year, went into effect January 1, 2020. Many employers are starting to prepare for the first filing deadline of March 30, 2021.

We put together some key information to prepare for the California individual mandate:

Impact to employers

Which employers need to file?

Employers with 50 or more Full Time Equivalent employees, who offer self-insured coverage, and have one or more California-Resident employees enrolled, must file with the Franchise Tax Board (FTB) of California. The same information outlined in section 6055 of the federal Affordable Care Act (ACA) is required by California. Employers can transmit the same federal Forms 1094-C and 1095-C they transmit to the IRS to the FTB. This includes both the original and corrected transmissions.


Employers do not have reporting obligations to the FTB for employees enrolled in fully insured health plans or under a multiemployer health plan. In these cases, the insurance companies or sponsors of these plans will be responsible for reporting coverage.  Additionally, employers do not have reporting obligations to the FTB for employees who waived coverage—even if the EEs are deemed ACA-Eligible and reportable to the IRS. (Source)

Filing deadline and penalty

California refers to this process of filing applicable 1094 and 1095 forms to as Minimum Essential Coverage Information Reporting (MEC IR).  The deadline is March 31, 2021 for employers and insurers to complete their reporting to the FTB for Tax Year 2020.  The penalty for failing to do so will be assessed at $50 per person.  Reporting entities are encouraged to report to FTB electronically regardless of size, though they will be permitted to file on paper if they are filing fewer than 250 forms or have been granted a hardship waiver. (Source)

Employee forms

Additionally, reporting employers and plan sponsors are responsible for furnishing 1095 forms to employees – the same form provided to individuals under the federal requirement will also simultaneously satisfy California’s requirement. The deadline to do so for tax year 2020 is January 31, 2021. The applicable forms must be properly addressed and mailed (or electronically furnished) to employees on or before this date.  It is important to note that California has stated there will be no extension of this deadline, even if the federal deadline to furnish forms to employees is extended. (Source)

Impact to employees and California taxpayers

As of January 1, 2020, all California residents must obtain and maintain Minimum Essential Coverage (MEC) qualifying health insurance unless they obtain an exemption. Taxpayers who fail to do so will face a penalty when they file their state tax return the following spring.  In addition to maintaining their own health coverage, individuals need to ensure their spouse or domestic partner and any dependents they claim have maintained qualifying coverage or they may be penalized for their lack of coverage. Qualifying coverage can be obtained through employer-sponsored plans, Medicare, (many) Medicaid plans, and coverage purchased directly from insurers or on the Covered California exchange.  More information about the plan requirements to qualify as MEC can be found by visiting the California Dept of Managed Healthcare website.

Individual penalties

Taxpayer Individual Shared Responsibility Penalties will be assessed in one of two ways:

  • Flat amount based on number of uninsured people in a household: $750/adult, $375/child
  • Percentage of the annual household income: 2.5% of the amount of gross income that exceeds the state filing threshold requirements. (Source)

The option which results in the higher penalty amount is the one that will be used.

Individuals may estimate their potential penalties for lack of coverage on FTB’s website.

COVID-19 and healthcare mandate considerations

Individuals negatively impacted by the pandemic, such as those experiencing income loss and job loss, will not have direct exemptions from the California Healthcare Mandate.  However, there are options available to help ease the burden of staying compliant: 

  • The Covered California healthcare exchange has opened a special enrollment period for those who have been affected by COVID-19 or by the wildfires that recently hit the state. 
  • Financial assistance for coverage on the exchange is available for those who qualify. Individuals can receive help from the state in addition to receiving federal financial help through Covered California.  Also, Medi-Cal offers free or low-cost coverage to eligible low-income CA residents. 
  • If taxpayers annual income drops drastically enough to put them below the tax filing threshold, or available health coverage becomes unaffordable, the individual may qualify for an exemption to the coverage requirement.  Unaffordable occurs when the lowest cost plan option, minus any available financial assistance, is more than 8.24% of projected income. More information can be found here.

Other sources:

https://www.ftb.ca.gov/file/business/report-mec-info/index.asp

http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200SB78

https://www.ftb.ca.gov/file/business/report-mec-info/technical-specifications.html

Complete Guide to State Individual Mandates

Tango is here to help. We have been successfully helping our clients with ACA compliance and state healthcare individual mandates from the beginning. Please reach out if we can help with your California filing needs.

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