Individual Mandate Relief Due to Employer Plan-Year Gaps

On June 27, 2013, the Internal Revenue Service (IRS) issued Notice 2013-42, which provides transitional relief to employees and their spouses and dependents, who are eligible to enroll in employer-sponsored group health plans with a plan year that runs on a non-calendar year basis that begins in 2013 and ends in 2014. These employees (and their spouses and dependents) will not be subject to a penalty for failing to obtain coverage under the Affordable Care Act’s “Individual Mandate” until the first day of the plan year that begins in 2014.


Starting in 2014, section 5000A of the Internal Revenue Code (Code) requires individuals, who are not exempt by law, to maintain “minimum essential coverage” (MEC) for themselves and their family members or pay a “Shared Responsibility” penalty through their federal income tax return.[2]  The requirement to obtain and maintain MEC is known as the “Individual Mandate.”  An individual taxpayer may be liable under the Individual Mandate for failing to obtain MEC for any nonexempt individual whom the taxpayer may claim as a dependent.

The IRS recognizes that many employer-sponsored plans run on a non-calendar year basis. In accordance with IRS rules, these plans may not allow employees to enroll in the plan after the beginning of a plan year unless certain triggering events occur, such as a change in employment or marital status. As a result, absent the IRS transition relief, individuals eligible for employer-sponsored coverage through a plan that runs on a non-calendar year basis would have had to enroll in coverage during the 2013-2014 plan year open enrollment period, in order to avoid application of the Individual Mandate penalty beginning January 1, 2014. The transition relief delays the application of the Individual Mandate for these individuals from January 1, 2014 to the first day of the plan year that begins in 2014.

In addition, any month in 2014 for which an individual is eligible for transition relief will not be counted in determining the “short coverage gap” exemption under the law. Under the Individual Mandate provisions, any gap in coverage that lasts less than three (3) months qualifies as a “short coverage gap,” during which the Individual Mandate penalty will not apply. If an individual has two (2) short coverage gaps during a year, the short coverage gap exemption only applies to the first coverage gap.

The following two examples are included in Notice 2013-42 to clarify the transition relief rules:

  • An unmarried employee and the employee’s dependent child are eligible to enroll in a non-calendar year employer-sponsored plan offered by the employee’s employer. The employer’s plan year for its group health plan begins on August 1, 2013 and ends on July 31, 2014. Neither the employee nor child enrolls in the employer’s plan for the 2013-2014 plan year. Both the employee and child are eligible for transition relief from the Individual Mandate for January 2014 through July 31, 2014.
  • Two married individuals are each eligible for enrollment in an employer’s non-calendar year plan for the August 1, 2013 – July 31, 2014 plan year and in a calendar year plan of an employer of the other spouse for calendar year 2014. The spouses decline to enroll in either the non-calendar year plan or the calendar year plan. Both individuals are eligible for the transition relief from the Individual Mandate beginning January 1, 2014 and ending July 31, 2014.

Source: ADP

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