The California individual mandate and the penalty companies should be watching

The California individual mandate and the penalty companies should be watching

Last summer, California joined the growing list of states enacting their own individual mandates. The mandate that was signed into law took effect January 1, 2020. On March 23, 2020, the California Franchise Tax Board released additional specifics on requirements for employers who employ California residents.

In many ways the law is similar to the mandates passed in other states, including New Jersey. But there is one clause all employers with employees who reside in California certainly will want to be mindful of.

Let’s take a look.

Basic components of the California Individual Mandate Employer Reporting
To start, let’s look at how the California mandate affects employers’ compliance requirements.

  • California will require employers with employees or COBRA participants who have resided in the state at any time during the year to provide information on insurance coverage. Similar to IRS federal requirements, employers will be required to submit Forms 1094 and 1095 to the State. Only one 1095-B or C needs to be provided to an individual. There is no need to send one for federal and one for state.
  • California has indicated the deadline for submission will be the same as the federal requirement (March 31) although the state is considering an auto-extension to May 31. If California chooses to extend its deadline, it will happen automatically, whereas with the federal filing, an extension request needs to be submitted.
  • Forms must be submitted in XML format. The state is currently developing a new File Exchange System for submission, with final details to come.

Employer penalty risk
While many aspects of California’s individual mandate mirror those of New Jersey and Washington D.C., there is one important differentiator that employers need to be aware of: Expect the Golden State to be active in enforcing applicable employer penalties.

Employers will be fined $50 per unreported individual and that these fines will grow on a case-by-case basis without a maximum ceiling. This makes California the second state (Massachusetts was the first) to enforce both an individual and employer filing penalty.

More information surrounding requirements is expected to be flushed out, but given the size of the state economy and the potential for associated penalties, the California individual mandate is certainly one companies across the country will be keeping a close eye on.

Individual penalty risk
In mid-February, the state announced that the open enrollment window would be extended from January 31 to April 30 to allow additional residents to enroll and avoid the individual mandate penalty.  For a family of four, this could result in more than $2,000 assessed when 2021 taxes are filed.

Keeping up with individual mandate changes
As the expectations surrounding compliance change from state to state, companies need a dependable partner they can count on to guide them toward their plan goals.

Health e(fx) can help. Offering a leading compliance, analytics and workforce solution, Health e(fx) allows companies to track their compliance considerations and coverage options no matter where they do business.

Companies trying to navigate the California state mandate will need support with:

  • State configuration and setup
  • Form audit and approval
  • Employer filing and submission
  • Corrections process
  • State ledger reports

For answers to the latest questions, stay up-to-date by reading the latest blog or contact Health e(fx) today.