New Jersey Enacts Shared Responsibility Healthcare Tax
On May 30, 2018, New Jersey Governor Phil Murphy signed legislation A. 3380 into law. Known as the “New Jersey Health Insurance Market Preservation Act,” this legislation now creates a state level individual health insurance mandate.
The state legislation is intended to counter a change that was made under the federal Tax Cuts and Jobs Act (TCJA) to the post-2018 federal penalty percentage for failure to meet the individual mandate under the federal Affordable Care Act (ACA). The ACA reset this percentage to zero percent. The New Jersey law now effectively reverses that federal policy.
Effective January 1, 2019, New Jersey residents will be required to maintain health care coverage that meets the minimum coverage thresholds in effect under the individual mandate requirements of the ACA, or face a New Jersey-imposed shared responsibility tax if they fail to do so. After 2018, New Jersey residents without health care insurance coverage meeting the applicable ACA individual mandate requirements, will be subject to a New Jersey state tax. This tax will be imposed at the penalty rate that was in effect under the ACA pursuant to Section 5000A of the Internal Revenue Code prior to the change made by the TCJA.
Federal Provisions Under the Affordable Care Act
Under the ACA’s individual mandate, most Americans without employer provided health insurance coverage are required to purchase health care coverage. For each month in which an individual fails to maintain minimum essential health coverage (for the individual or for the individual’s dependents), the individual is subject to a federal penalty. For most taxpayers in 2018 the federal individual mandate penalty is equal to $695 per adult and $347.50 per individual under the age of 18. However, after 2018, under the TCJA, the amount of the federal penalty has been reduced to zero.
New Jersey Health Insurance Market Preservation Act
With certain exceptions, the amount of the New Jersey shared responsibility tax will now be the same as the federal penalty amount under the ACA. The state revenues from this tax are to be used as part of a New Jersey state reinsurance program designed to help health insurers in New Jersey make payments on certain of their most costly claims. The new law also requires the New Jersey treasurer to adopt regulations necessary to reflect the differences between the new state law and the federal individual mandate provisions of the ACA. Additionally, applicable entities, such as employers and insurers that provide minimum essential health care coverage to individuals in New Jersey, will be required to submit information about those individuals and their health insurance coverage to the state treasurer.
However, the New Jersey tax will not apply to any individual whose gross taxable income is below the minimum amount for determining whether a New Jersey Gross Income Tax return is required, i.e. $10,000 for single filers, or $20,000 for married filing joint filers.
What Does CohnReznick Think?
With the new state tax going into effect for 2019, individuals in New Jersey who do not have health insurance coverage satisfying the requirements of the ACA individual mandate should assess the financial impacts of their personal health care insurance choices based on the new state law. Individuals should also be aware of both the costs and advantages of obtaining their own coverage and the amount of the New Jersey tax for non-coverage that will go into effect for 2019. Additionally, New Jersey employers will need to comply with any new reporting regulations issued by the New Jersey state treasurer in this regard.
For more information, please contact Harry Golematis, Director, State and Local Tax Services, at Harry.Golematis@CohnReznick.com or 973-364-7891.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.