New Jersey Enacts Shared Responsibility Payment for Taxpayers
by David Engel CPA (RIA)
The New Jersey Health Insurance Market Preservation Act, replaces the shared responsibility payment established by the federal Affordable Care Act (ACA), which has been repealed for tax years beginning after 2018, with its own very similar shared responsibility payment. ( L. 2018, A3380, effective for tax years beginning on or after January 1, 2019.)
Under pre-Tax Cuts and Jobs Act (TCJA) law, for each tax year, the shared responsibility payment (penalty) imposed by IRC § 5000Awas the lesser of (a) the sum of the monthly penalty amounts, or (b) the sum of the monthly national average bronze plan premiums for the shared responsibility family plan. The monthly penalty amount for any taxpayer for any month during which a failure occurred was equal to 1/12 of the greater of the flat dollar amount or the excess income amount. The flat dollar amount was generally equal to the lesser of (1) the sum of the applicable dollar amounts for all individuals included in the taxpayer’s shared responsibility family, or (2) 300% of the applicable dollar amount for the calendar year the tax year ends. The applicable dollar amount for the 2017 tax year was $695 for adults and $347.50 for persons under age 18. The excess income amount was the product of the excess of the taxpayer’s household income over the taxpayer’s applicable filing threshold multiplied by 2.5%. For tax years beginning on or after January 1, 2019, the TCJA eliminated the shared responsibility payment for individuals.
The amount of the New Jersey shared responsibility tax is the same as the above pre-TCJA federal rules except that instead of the sum of the national average bronze plan premiums, the the New Jersey average premium for qualified health plans which provide a bronze-level of coverage is used.
The law requires the State Treasurer to establish a program for determining whether to certify that an individual is entitled to an exemption from either the individual responsibility requirement or the shared responsibility tax by reason of religious conscience or hardship. The threshold to qualify for a hardship exemption is determined based on an individual’s required contribution for health insurance coverage under the ACA as it was in effect on December 15, 2017, i.e., prior to the TCJA. For the 2017 tax year, the instructions to Form 8965 (Health Coverage Exemptions) state that coverage was unaffordable if the cost of the coverage exceeded 8.16% of the taxpayer’s household income. Thus, if coverage cost even $1 more than 8.16% of the taxpayer’s household income, the shared responsibility payment rules did not apply.
The law requires the State Treasurer to determine the income threshold for minimum essential coverage to be considered unaffordable. The shared responsibility tax is not imposed for any month during a calendar year if the taxpayer’s gross income is below the state minimum taxable threshold. If a taxpayer is subject to the state shared responsibility tax and the federal penalty, the taxpayer is allowed a credit against the taxpayer’s state gross income tax obligation for that taxable year, in the amount of the taxpayer’s federal penalty payment, but not to exceed the amount of the taxpayer’s state tax imposed by the bill in the taxable year. For purposes of administering the tax, the bill requires applicable entities, including employers, insurers, and the Department of Human Services (with respect to the Medicaid and NJ FamilyCare programs), that provide minimum essential coverage to an individual during a calendar year to submit a return to the State Treasurer with information about individuals and their coverage. To minimize the reporting burden, the return may also be in the form of a return required under the pre-TCJA ACA. Finally, the bill requires the State Treasurer, in consultation with the Commissioner of Banking and Insurance, to send a notification containing information on the services available to obtain minimum essential coverage to each gross income taxpayer who files a gross income tax return indicating that the taxpayer or one of their dependents is not enrolled in what is classified as minimum essential coverage.
The shared responsibility payment will not be applicable for any tax year in which the premium tax credit is repealed.