[UPDATED] State Individual Mandates: Summary of Employer Obligations

Updated May 11, 2020 with additional guidance on the California employer reporting requirement. 

Updated April 24, 2020 with updated deadlines. 

Massachusetts, New Jersey, Washington D.C., California, Rhode Island and Vermont have passed individual mandates which require their residents to maintain minimum essential health care coverage or pay a tax penalty. States began passing individual mandates after Congress reduced the federal individual mandate under the Affordable Care Act (ACA) to $0, which went into effect in 2019.

As a part of the individual mandates, states require employers to submit reports on employee coverage and distribute statements to covered employees, similar to the federal reporting requirements under the ACA (IRC section 6055). Below is a brief summary of the employer requirements and deadlines under the different individual mandates.

Compliance Snapshot: 

Massachusetts: Certain employers must distribute MA 1099-HCs to employees and submit MA 1099-HC information to the state through MassTaxConnect by January 31st following the plan year.

New Jersey: Individual Mandate began January 1, 2019. Employers must submit copies of their ACA reporting forms to the state and distribute the forms to New Jersey employees. The first reporting to the state is due on May 15, 2020 (the deadline was previously March 31, 2020). Employers will file the forms through the New Jersey system for filing W-2 forms.

Washington, D.C.: Individual Mandate began January 1, 2019. Employers must submit copies of their ACA reporting forms to the state by June 30, 2020 (for the first year of reporting) and distribute the forms to D.C. employees.

California: Individual Mandate begins January 1, 2020. Employers must submit copies of their ACA reporting forms (or a state-specific form) to the state by March 31, 2021 (only if their insurance carrier does not do so) and distribute the forms to California employees by January 31, 2021.

Rhode Island: Individual Mandate begins January 1, 2020. Employers must submit copies of their ACA reporting forms (or a state-specific form) to the state (deadline TBD) and distribute the forms to Rhode Island employees by January 31, 2021.

Vermont: Individual Mandate begins January 1, 2020. Currently, there are no employer reporting or distribution requirements.

Round Up of the State Individual Mandates: 

Massachusetts

Summary: The Massachusetts Health Reform Law (“individual mandate”) requires most residents over the age of 18 to have minimum credible coverage (MCC) or pay a penalty through their tax returns. MCC means that the coverage must provide a list of certain benefits and services, as defined by the state of Massachusetts (MA). MA carriers must indicate on their plan documents whether their plans meet MCC. Most coverage sold in MA meets MCC.

Employer Obligations: Insurance carriers and certain employers are required submit reporting to the state and distribute Forms MA 1099-HC to individuals, which are used to complete their tax returns.

For employers with fully insured plans, most carriers will distribute MA 1099-HCs on behalf of employers and submit reporting to the state. If a carrier does not do this, employers have the below submission and distribution requirements.

For employers with self-insured plans and plans sitused outside of Massachusetts, employers must annually distribute MA 1099-HCs to employees and report to the state by January 31st following the plan year.

1. Submit Reporting to the State: Employers must submit the MA 1099-HC information to the Department of Revenue (DOR) electronically through MassTaxConnect.
2. Distribute Statements to Employees: Employers can obtain draft copies of the Form MA 1099-HC on the DOR website to distribute to employees.

Some vendors distribute the MA 1099-HC forms and report to the DOR; however, it is ultimately the employer’s responsibility to fulfill these obligations. Employers who fail to issue a Form MA 1099-HC may be subject to a $50 penalty per individual, up to a maximum of $50,000.

New Jersey

Summary: Beginning January 1, 2019, New Jersey Health Insurance Market Preservation Act (“individual mandate”) requires all New Jersey residents to have “minimum essential coverage” or pay a tax penalty. Minimum essential coverage (MEC) has the same definition as that under the Affordable Care Act (ACA), which requires coverage to provide ten categories of essential health benefits and services. For more on the New Jersey individual mandate, see our blog article.

Employer Obligations: New Jersey employers and out-of-state employers that provide MEC to NJ employees (employees whom they withhold and remit New Jersey Gross Income Tax on behalf of) must submit returns to the state and distribute statements to employees.

1. Submit ACA Reporting to the State: Employers must submit the same ACA reporting forms that they provide to the IRS by March 31st following the close of the calendar year. For more on ACA Reporting requirements, see the state’s webpage for employers.The first report will be due May 15, 2020. Employers will submit forms through the New Jersey system for filing W-2 forms.
2. Distribute Statements to Employees: Employers must distribute copies of their ACA reporting forms to New Jersey residents in accordance with their obligation under the ACA. No additional distribution is required.

For more on reporting requirements, see the state’s webpage for employers, or our blog article.

Washington D.C.

Summary: Beginning January 1, 2019, the Washington D.C. individual mandate requires all D.C. residents to have minimum essential health insurance coverage, get an exemption, or pay a tax penalty on their D.C. tax returns. “Minimum essential coverage” (MEC) under the mandate has the same definition as that under the Affordable Care Act (ACA), which requires coverage to provide ten categories of essential health benefits and services.

Employer Obligations: Employers that provide MEC to D.C. residents must submit returns to the state and distribute written statements to employees.

1. Submit Returns to the State: Employers must submit their ACA reporting (IRS Forms 1094/5-B and 1094/5-C) to the state. Reporting for the 2019 tax year is due June 30, 2020. For subsequent years the deadline is 30 days ACA reporting deadline, including any extensions granted by the IRS.
2. Distribute Statements to Employees: Employers must distribute written statements to individuals whose name appear on the above submitted returns. Employers can satisfy this requirement by distributing statements (Form 1095-B or Form 1095-C) to employees as required under the ACA. No additional distribution is required.

For additional information, see the district’s Employer FAQ on Reporting Requirements.

California

Summary: Beginning January 1, 2020, the California Minimum Essential Coverage Individual Mandate (“individual mandate”) requires California residents to maintain “minimum essential coverage” or pay a penalty. Minimum essential coverage (MEC) is defined under California Health and Safety Code Section 1345.5, which includes employer-sponsored coverage bought through the California small or large group insurance market and coverage that meets MEC under the Affordable Care Act (ACA).

Employer Obligations: Employers who provide MEC to California residents must submit return to the state and distribute written statements to employees. Employers are not subject to submission and distribution obligations if the carrier performs these obligations.

1. Submit Returns to the State: Employers must submit returns to the California Franchise Tax Board by March 31st following the end of the plan year. These returns must contain demographic information of covered individuals, the dates of coverage, and any other information that the Franchise Tax Board prescribes. Employers can also satisfy this requirement by submitting their ACA reporting. The Franchise Tax Board will prescribe additional guidance on the requirements for the reporting requirement.
2. Distribute Statements to Employees: Employers must provide written statements to employees (and former employees covered during the plan year) by January 31st following the end of the plan year. The statement must contain information on the returns submitted to the state. Employers can satisfy this requirement by distributing forms required under ACA reporting. The Franchise Tax Board will prescribe additional guidance on the requirements for the distribution requirement.

Employers may contract with third party service providers, including carriers, to provide these returns and statements. Employers who fail to submit returns as required, will be subject to $50 penalty per individual.

For additional information, see the California State Franchise Tax Board employer reporting webpage.

Rhode Island

Summary: Beginning January 1, 2020, the Rhode Island individual mandate requires Rhode Island residents to maintain “minimum essential coverage,” qualify for an exemption, or pay a penalty. “Minimum essential coverage” (MEC) under the mandate has the same definition as that under the Affordable Care Act (ACA), which requires coverage to provide ten categories of essential health benefits and services.

Employer Obligations: Employers that provide employment-based MEC to any resident of Rhode Island, must submit their ACA reporting (or a state-specific return) to the state and distribute written statements to employees.

1. Submit State Returns: Employers must submit their ACA reporting or a state-specific return to the Rhode Island Division of Taxation. The reporting deadline has not yet been determined.
2. Distribute Statement to Employees: Employers must distribute written statements to individuals whose name appear on the above submissions by January 31st following the end of the plan year. Employers can satisfy this requirement by providing statements to individuals, as required under the ACA Employer Mandate (Form 1095-B or Form 1095-C).

Additional guidance on the submission and distribution requirements will be forthcoming.

Vermont

In 2018, Vermont enacted H.696 a state-wide individual mandate that requires Vermont residents to have “minimum essential coverage” starting January 1, 2020. “Minimum essential coverage” (MEC) has the same definition as that under the Affordable Care Act, which requires coverage to provide ten categories of essential health benefits and services. An enforcement mechanism for this individual mandate was to be decided in the 2019 legislative session. However, the 2019 major health care policy bill H.524 did not include the tax penalty for the individual mandate, leaving no means for Vermont to enforce the law.

The law does require individuals filing Vermont income tax returns to indicate whether they maintained MEC in accordance with the individual mandate or was exempt from the coverage requirements. Currently, there are no employer submission or distribution requirements.

Employer Obligations Under State Individual Mandates

Employer Action Items

• Employers should assess whether their employees are subject to a state (or district) individual mandate.
• Employers should determine whether they have state-specific submission and distribution requirements and comply accordingly.
• Most individual mandates are still developing law. Employers should watch for additional guidance on the various employer requirements.

Additional Resources

• California Franchise Tax Board: Employer Reporting Requirements 
• Massachusetts Health Care Reform for Employers
• Vermont Individual Mandate
• New Jersey Insurance Mandate Website
• D.C. Reporting of health insurance coverage
• Rhode Island Summary of Individual Mandate

The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current legal developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog.

Emerald Law – Emerald is a Client Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Emerald enjoys stand-up comedy, live music and writing non-fiction.