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IRS Issues Final Guidelines on Obamacare's Individual Mandate: What It Means for You

Thursday - 8/29/2013, 8:00am  ET

With state-run health care exchanges set to open for business in just one month and two days, the pieces of the puzzle that will make up the Patient Protection and Affordable Care Act, known also as Obamacare, are starting to take shape.

Putting the polls and public opinion on the back burner, we've taken a look in recent weeks at the technological implementation aspects of this bill and how it will challenge cloud-computing developers, as well as the education aspects of informing millions of Americans about where to get their insurance, how the bill will affect them, and how to use this information to their advantage to make smart choices.

Earlier this week, another piece of the puzzle fell into place when the Internal Revenue Service released its final guidelines (link opens PDF) on Obamacare's individual mandate. While a lot of the information in the 75-page document came as no surprise to me or those who've kept abreast on what this bill means for them, prior to this IRS release there were still plenty of questions left to be answered about what constituted minimum coverage and who would or wouldn't face a penalty under the new law. Well, folks, consider those questions answered!

Below I've listed some of the most important aspects of the IRS' 75-page guidelines, which should answer nearly all previously unanswered questions about Obamacare's individual mandate and clear up confusion on how the bill might affect you.

How does the Obamacare individual mandate affect my dependents?
We finally have a straightforward answer to this question. If you file a tax return that claims your spouse or children as dependents, and one or more of them don't have health insurance, you will be paying their individual mandate fine -- or as the IRS surmises, sharing in their responsibility. As Forbes was quick to note, this is an extremely important fine-print note because it ties in so intricately with what United Parcel Service did last week by announcing that it would not be allowing approximately 15,000 of its nonunion employees to add working spouses to their health insurance plan in 2014. The move saves UPS some $60 million annually, but could potentially make that employee now responsible for their spouses mandate fine should they not get health care and be claimed as a dependent.

Are there any exemptions to the individual mandate?
Actually, there are a lot more exemptions than many realize! For instance, if you have to pay for your own health insurance and the cost of that insurance totals more than 8% of your household income, you're exempt from the mandate, which will be the case for a lot of seniors. The same is true if you don't file a tax return because you make less than the U.S. poverty line -- you'll be exempt. According to the IRS, recognized religious sects of divisions, American Indians, and those currently incarcerated in American prisons will also be exempt. Special consideration is also given to adopted children who are exempt for the first year following their adoption.

Are there any coverage gap exemptions?
Let's hypothetically say that you forgot to pay your health insurance for a month and it lapsed, or you lost your job and went a month or two without health insurance coverage... would you be penalized? The answer is "no"! The IRS notes that you will be allowed a period of three months or less of lapsed coverage once a year should there be any coverage gaps without the fear of penalty.

I have an employer-sponsored plan -- am I OK?
According to the IRS guidelines, chances are almost certain that you are. Under Obamacare, the minimum benefits coverage has been greatly expanded, raising fears that many employee-based health plans would prove insufficient. Based on the IRS' fine print, it appears that as long as your employer-based health insurance is either a government-sponsored plan (i.e., Medicare or Medicaid), or some form of plan legally purchased within the state in question for small or large groups, then it meets the standards of supplying the minimum health benefit requirements as outlined by the law.

Are there any special employer-sponsored situations?
Yes, there are! In addition to the exemptions discussed above, persons working for temporary staffing agencies are exempt from the mandate as are employees who get coverage through a union-sponsored plan. This could work in the favor of a company like General Motors , which has roughly 50,000 unionized workers under the United Auto Workers labor union. With a good chunk of GM's staff no longer needing to worry about how the individual mandate will affect them, those employees can instead focus on making GM a great company once again.

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