Code Section Group

Revenue and Taxation Code - RTC

DIVISION 2. OTHER TAXES [6001 - 61045]

  ( Heading of Division 2 amended by Stats. 1968, Ch. 279. )

PART 32. Individual Shared Responsibility Penalty [61000 - 61045]
  ( Part 32 added by Stats. 2019, Ch. 38, Sec. 42. )

61000.
  

For the purposes of this part, the following definitions shall apply:

(a) “Applicable entity” means the following:

(1) A carrier licensed or otherwise authorized to offer health coverage with respect to minimum essential coverage, including coverage in a catastrophic plan, that is not described in paragraph (3) or (4).

(2) An employer or other sponsor of an employment-based health plan with respect to employment-based minimum essential coverage

(3) The State Department of Health Care Services and county welfare departments with respect to coverage under a state program.

(4) The Exchange with respect to individual health plans, except catastrophic plans, on the Exchange.

(5) Any other provider of minimum essential coverage, including the University of California with respect to coverage under a student health insurance program.

(b) “Applicable dependent” has the same meaning as defined in Section 100710 of the Government Code.

(c) “Applicable household income” means, with respect to a responsible individual for a taxable year, an amount equal to the sum of the modified adjusted gross income of all applicable household members who were required to file a tax return under Chapter 2 (commencing with Section 18501) of Part 10.2 for the taxable year.

(d) “Applicable household members” means, with respect to a responsible individual, all of the following persons:

(1) The responsible individual.

(2) The responsible individual’s applicable spouse.

(3) The responsible individual’s applicable dependents.

(e) “Applicable individual” has the same meaning as defined in Section 100710 of the Government Code.

(f) “Applicable spouse” has the same meaning as defined in Section 100710 of the Government Code.

(g) “Dependent” has the same meaning as defined in Section 17056 of the Revenue and Taxation Code.

(h) “Exchange” means the California Health Benefit Exchange, also known as Covered California, established pursuant to Title 22 (commencing with Section 100500).

(i) “Household size” means, with respect to a responsible individual, the number of applicable household members.

(j) “Modified adjusted gross income” means adjusted gross income, as defined in Section 17072, increased by both of the following:

(1) The amount of interest received or accrued by the individual during the taxable year that is exempt from tax, unless the interest is exempt from tax under the United States Constitution or the California Constitution.

(2) Foreign-earned income, foreign housing exclusion, or foreign housing deduction under Section 911 of the Internal Revenue Code.

(k) “Premium assistance” means the amount of credit allowable under Section 36B of the Internal Revenue Code of 1986 and any premium assistance subsidies administered pursuant to Title 25 (commencing with Section 100800) of the Government Code.

(l) “Qualified health plan” has the same meaning as defined in Section 1301 of the federal Patient Protection and Affordable Care Act (Public Law 111-148), as amended by the federal Health Care and Education Reconciliation Act of 2010 (Public Law 111-152).

(m) (1) Except as provided in paragraphs (2) and (3), “responsible individual” means an applicable individual who is required to file a return under Chapter 2 (commencing with Section 18501) of Part 10.2 and who is either of the following:

(A) An applicable individual required to be enrolled in and maintain minimum essential coverage, pursuant to subdivision (a) of Section 100705 of the Government Code.

(B) An applicable individual required to ensure that a person who qualifies as the applicable individual’s applicable spouse or applicable dependent is enrolled in and maintains minimum essential coverage for that month, pursuant to subdivision (b) of Section 100705 of the Government Code.

(2) If two applicable individuals file a joint return, only one shall be considered the responsible individual for purposes of calculating the penalty as determined by the Franchise Tax Board.

(3) If a dependent files a return, only the dependent or the individual claiming the dependent, but not both, shall be considered the responsible individual for purposes of calculating the penalty as determined by the Franchise Tax Board.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61005.
  

(a) The Legislature finds and declares both of the following:

(1) The reporting requirement provided for in this section is necessary for the successful implementation of the penalty imposed by Section 61010. In particular, this requirement provides the only widespread source of third-party reporting to help applicable individuals and the Franchise Tax Board verify whether an applicable individual maintains minimum essential coverage. There is compelling evidence that third-party reporting is crucial for ensuring compliance with those tax provisions.

(2) The reporting requirement in this section has been narrowly tailored to support compliance with the penalty imposed by Section 61010, while imposing only an incidental burden on reporting entities. In particular, the information required to be reported under this section is limited to the information already required to be reported under a similar federal reporting requirement under Section 6055 of the Internal Revenue Code of 1986. In addition, this section provides that its reporting requirement may be satisfied by providing the same information that is currently reported under that federal requirement.

(b) For purposes of administering the penalty imposed by this part on applicable individuals who fail to maintain minimum essential coverage as required by Title 24 of the Government Code:

(1) An applicable entity that provides minimum essential coverage to an individual during a calendar year shall, at the time the Franchise Tax Board prescribes, make a return to the Franchise Tax Board in the form and manner described in subdivision (c) or (d) on or before March 31 of the year following the calendar year for which the return is required.

(2) An applicable entity described in paragraph (2) of subdivision (a) of Section 61000 shall not be required to make the return specified in paragraph (1) if the applicable entity that is described in paragraph (1) of subdivision (a) of Section 61000 makes that return.

(c) Except as provided in subdivision (d), an applicable entity shall make a return that complies with all of the following:

(1) Is in the form as the Franchise Tax Board prescribes.

(2) Contains the name, address, and taxpayer identification number of the applicable individual and the name and taxpayer identification number of each other individual who receives coverage under the policy.

(3) Contains the dates during which the individuals specified in paragraph (2) were covered under minimum essential coverage during the calendar year.

(4) Contains any other information as the Franchise Tax Board may require.

(d) Notwithstanding the requirements of subdivision (c), a return complies with the requirements of this section if it is in the form of, and includes the information contained in, a return described in Section 6055 of the Internal Revenue Code of 1986, as that section is in effect on December 15, 2017.

(e) Except as provided in subdivision (g), an applicable entity required to make a return under subdivision (b) shall provide to each primary subscriber, primary policyholder, primary insured, employee, former employee, uniformed services sponsor, parent, or other related person named on an application who enrolls one or more individuals, including themselves, in minimum essential coverage a written statement in the form and manner described in subdivision (f) on or before January 31 of the year following the calendar year for which the return is required under subdivision (b).

(f) The written statement required by subdivision (e) shall include both of the following:

(1) The name and address of the person required to make the return and the telephone number of the contact information for that person.

(2) The information required to be shown on the return, as specified in subdivision (c).

(g) Notwithstanding subdivisions (e) and (f), the requirements of this section may be satisfied by a written statement provided to an individual under Section 6055 of the Internal Revenue Code of 1986, as that section is in effect and interpreted on December 15, 2017.

(h) In the case of coverage provided by an applicable entity that is a governmental unit or an agency or instrumentality of that unit, the officer or employee who enters into the agreement to provide the coverage, or the person appropriately designated for purposes of this section, shall be responsible for the returns and statements required by this section.

(i) An applicable entity may contract with third-party service providers, including insurance carriers, to provide the returns and statements required by this section.

(j) Except for the applicable entities described in paragraphs (3) and (4) of subdivision (a) of Section 61000, a penalty shall be imposed on an applicable entity that fails to make a return as required by subdivision (b) in an amount of fifty dollars ($50) per applicable individual covered by the applicable entity for a taxable year in which the failure occurs.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61010.
  

(a) A penalty in the amount determined under Section 61015 shall be imposed on a responsible individual for a failure by the responsible individual, the applicable spouse, or an applicable dependent to enroll in and maintain minimum essential coverage pursuant to Section 100705 of the Government Code for one or more months, except as provided in Section 61020 and 61023. This penalty shall be referred to as the Individual Shared Responsibility Penalty.

(b) A penalty imposed by this section with respect to any month shall be included with a responsible individual’s return under Chapter 2 (commencing with Section 18501) of Part 10.2 for the taxable year that includes that month.

(c) If an individual with respect to whom a penalty is imposed by this section for any month is a dependent of another individual for the other individual’s taxable year, including that month, the other individual shall be solely liable for that penalty.

(d) If a responsible individual with respect to whom a penalty is imposed pursuant to this section for any month files a joint return for the taxable year, including that month, that responsible individual and the spouse or domestic partner of the individual shall be jointly and severally liable for the penalty imposed.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61015.
  

(a) The amount of the Individual Shared Responsibility Penalty imposed on a responsible individual for a taxable year with respect to the failures described in Section 61010 shall be equal to the lesser of either of the following amounts:

(1) The sum of the monthly penalty amounts determined under subdivision (b) for months in the taxable year during which one or more of the failures described in Section 61010 occurred.

(2) An amount equal to one-twelfth of the state average premium for qualified health plans that have a bronze level of coverage for the applicable household size involved, and are offered through the Exchange for plan years beginning in the calendar year with or within which the taxable year ends, multiplied by the number of months in which a failure described in Section 61010 occurred.

(b) For purposes of subdivision (a), the monthly penalty amount with respect to a responsible individual for any month during which a failure described in Section 61010 occurred is an amount equal to one-twelfth of the greater of either of the following amounts:

(1) An amount equal to the lesser of either of the following:

(A) The sum of the applicable dollar amounts for all applicable household members who failed to enroll in and maintain minimum essential coverage pursuant to Section 100705 of the Government Code during the month, except as provided by Section 61023.

(B) Three hundred percent of the applicable dollar amount determined for the calendar year during which the taxable year ends.

(2) An amount equal to 2.5 percent of the excess of the responsible individual’s applicable household income for the taxable year over the amount of gross income that would trigger the responsible individual’s requirement to file a state income tax return under Section 18501, also referred to as the applicable filing threshold, for the taxable year.

(c) For purposes of subdivisions (a) and (b):

(1) Except as provided in paragraph (2) and subdivision (d), the applicable dollar amount is six hundred ninety-five dollars ($695).

(2) If an applicable individual has not attained 18 years of age as of the beginning of a month, the applicable dollar amount with respect to that individual for that month shall be equal to one-half of the applicable dollar amount as provided in paragraph (1) or subdivision (d).

(d) In the case of a calendar year beginning after 2019, the applicable dollar amount shall be equal to six hundred ninety-five dollars ($695) and increased as follows:

(1) An amount equal to six hundred ninety-five dollars ($695) multiplied by the cost-of-living adjustment determined pursuant to paragraph (2).

(2) A cost-of-living adjustment for a calendar year is an amount equal to the percentage by which the California Consumer Price Index for all items in the preceding calendar year exceeds the California Consumer Price Index for all items for the 2016 calendar year.

(3) If the amount of an increase under paragraph (1) is not a multiple of fifty dollars ($50), that increase shall be rounded down to the next multiple of fifty dollars ($50).

(4) No later than August 1 of each year, the Department of Industrial Relations shall annually transmit to the Franchise Tax Board the percentage change in the California Consumer Price Index for all items from June of the prior calendar year to June of the current calendar year, inclusive.

(e) For taxable years during which the Franchise Tax Board determines that a federal shared responsibility penalty applies, the Individual Shared Responsibility Penalty shall be reduced, but not below zero, by the amount of the federal penalty imposed on the responsible individual for each month of the taxable year during which the Individual Shared Responsibility Penalty is imposed.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61020.
  

An Individual Shared Responsibility Penalty shall not be imposed on a responsible individual for a month in which any of the following circumstances apply:

(a) If the responsible individual’s required contribution, determined on an annual basis, for coverage for the month exceeds 8.3 percent of that responsible individual’s applicable household income for the taxable year.

(1) For purposes of applying this subdivision, an individual’s applicable household income shall be increased by any exclusion from gross income for any portion of the required contribution made through a salary reduction arrangement.

(2) For purposes of this subdivision, the term “required contribution” means either of the following:

(A) In the case of a responsible individual eligible to purchase minimum essential coverage consisting of coverage through an eligible employer-sponsored plan, the portion of the annual premium that would be paid by the responsible individual, without regard to whether paid through salary reduction or otherwise, for self-only coverage.

(B) In the case of a responsible individual eligible only to purchase minimum essential coverage in the individual market, the annual premium for the lowest cost bronze plan available in the individual market through the Exchange in the rating area in which the individual resides, reduced by any premium assistance for the taxable year determined as if the responsible individual was covered by a qualified health plan offered through the Exchange for the entire taxable year.

(3) For purposes of subparagraph (A) of paragraph (2), if a responsible individual is eligible for minimum essential coverage through an employer by reason of a relationship to an employee, the determination under paragraph (1) shall be made by reference to the portion of the premium required to be paid by the employee for family coverage.

(4) In the case of plan years beginning in any calendar year after 2019, this subdivision shall be applied by substituting for “8.3 percent” an amount equal to 8 percent increased by the amount the United States Secretary of Health and Human Services determines reflects the excess of the rate of premium growth between the preceding calendar year and 2013 over the rate of income growth for that period. If the United States Secretary of Health and Human Services fails to determine this percentage for a calendar year, the Exchange shall determine the percentage.

(b) If the responsible individual’s applicable household income for the taxable year containing the month is less than the amount of adjusted gross income specified in paragraph (1) or (2) of subdivision (a) of Section 18501 for that taxable year.

(c) If the responsible individual’s gross income for the taxable year containing the month is less than the amount specified in paragraph (3) of subdivision (a) of Section 18501.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61023.
  

An Individual Shared Responsibility Penalty shall not be imposed with respect to an applicable household member for a month if the last day of the month occurred during a period in which the applicable household member did not maintain minimum essential coverage for a continuous period of three months or less.

(a) The length of a continuous period shall be determined without regard to the calendar years in which months in that period occur.

(b) If a continuous period is greater than the period allowed under this subdivision, an exception shall not be provided under this subdivision for any month in the period.

(c) If there is more than one continuous period described in this subdivision covering months in a calendar year, the exception provided by this subdivision shall only apply to months in the first of those periods.

(d) The Franchise Tax Board may prescribe rules for the collection of the penalty imposed by this section in cases where continuous periods include months in more than one taxable year.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61025.
  

(a) The Franchise Tax Board’s civil authority and procedures for purposes of compliance with notice and other due process requirements imposed by law to collect income taxes shall be applicable to the collection of the Individual Shared Responsibility Penalty.

(b) The Individual Shared Responsibility Penalty shall be paid upon notice and demand by the Franchise Tax Board, and shall be assessed and collected pursuant to Part 10.2 (commencing with Section 18401), except as follows:

(1) If an applicable individual fails to timely pay the Individual Shared Responsibility Penalty, the applicable individual shall not be subject to a criminal prosecution or penalty with respect to that failure.

(2) The Franchise Tax Board shall not file a notice of lien with respect to any real property of an applicable individual by reason of any failure to pay the Individual Shared Responsibility Penalty, or levy any real property with respect to that failure.

(3) For the purpose of collecting the Individual Shared Responsibility Penalty, Article 1 (commencing with Section 19201) of Chapter 5 of Part 10.2 shall not apply.

(c) The Franchise Tax Board shall integrate enforcement of the Individual Shared Responsibility Penalty into existing activities, protocols, and procedures, including audits, enforcement actions, and taxpayer education efforts.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61030.
  

(a) The Franchise Tax Board may, in consultation with the Exchange, adopt regulations that are necessary and appropriate to implement this part.

(b) It is the intent of the Legislature that, in construing this part, the regulations promulgated by under Section 5000A of the Internal Revenue Code as of December 15, 2017, notwithstanding the specified date in paragraph (1) of subdivision (a) of Section 17024.5, shall apply to the extent that those regulations do not conflict with this part or regulations promulgated by the Franchise Tax Board pursuant to subdivision (a) in consultation with the Exchange.

(c) Until January 1, 2022, the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code) shall not apply to any standard, criterion, procedure, determination, rule, notice, guideline, or any other guidance established or issued by the Franchise Tax Board pursuant to this part.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61035.
  

Moneys collected from the Individual Shared Responsibility Penalty shall be deposited into the General Fund.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61040.
  

The provisions of this part are severable. If any provision of this part or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

61045.
  

The Franchise Tax Board shall annually publish on its internet website all of the following information:

(a) The number of applicable households paying the penalty and the average penalty amount by applicable household income level.

(b) The number of applicable households paying the penalty in each county and statewide.

(c) The total penalty amount collected.

(d) The number and type of most commonly claimed exemptions.

(e) The number and total penalty amounts collected under subdivision (j) of Section 61005.

(Added by Stats. 2019, Ch. 38, Sec. 42. (SB 78) Effective June 27, 2019.)

RTCRevenue and Taxation Code - RTC