California recently passed an individual health insurance mandate and expanded paid family leave in the 2019-2020 state budget (“bill”).
Compliance Snapshot
- Starting in 2021, employers will have reporting and notice obligations under the new California individual mandate law.
- Starting July 1, 2020, the California Paid Family Leave program will provide up to 8 weeks (increased from 6 weeks) of wage replacement to care for a family member or to bond with a child.
Individual Mandate
| Date | Action |
| January 1, 2020 | Individual Mandate Takes Effect |
| January 31, 2021 | Employers Must Provide Individual Mandate Statements to Employees |
| March 31, 2021 | Employers Must Submit Individual Mandate Returns to the Franchise Tax Board |
California joins New Jersey, Massachusetts, and Vermont in passing a state-wide individual mandate. States began passing individual mandates after Congress essentially repealed the federal individual mandate under the Affordable Care Act (ACA).
Beginning January 1, 2020, the California Minimum Essential Coverage Individual Mandate (“individual mandate”) requires California residents to maintain minimum essential coverage or pay a penalty. Minimum essential coverage is defined under Health and Safety Code Section 1345.5, which includes employer-sponsored group health insurance policies bought through the California small or large group insurance market.
California residents must also ensure that their “applicable” spouse and dependents maintain coverage. Certain exemptions apply, including for individuals with a hardship or a religious objection.
Individual Shared Responsibility Penalty
A penalty will be imposed on a responsible individual if they, their applicable spouse, or their applicable dependents fail to maintain minimum essential coverage for one or more months. An applicable spouse or dependent are those eligible for health care coverage because of the responsible individual’s employment status or status as the head of the household, parent, spouse or domestic partner.
The annual penalty is 2.5% of household income or a per person charge, whichever is higher. The per person penalty will be $695 per adult and $375.50 per child (adjusted annually for inflation). The penalty cannot exceed the cost of the state average premium for bronze level coverage offered through the California Exchange for the applicable household size.
Employer Reporting and Notice Requirements
Employers who provide minimum essential coverage to California residents must submit state returns and provide written statements to employees. However, employers are not required to submit state returns or provide written statements to employees if the carrier does this.
Submit Returns to the State: Employers must submit returns to the California Franchise Tax Board by March 31st following the end of the plan year. These returns must contain demographic information of covered individuals, the dates of coverage, and any other information that the Franchise Tax Board prescribes. Employers can also satisfy this requirement by submitting returns with the information described under Section 6055 of the Internal Revenue Code (IRC), which requires carriers and employers with self-insured plans to federally file Forms 1094-B/C and 1095 B/C with the Internal Revenue Service (IRS) under the ACA.
Written Statements to Employees: Employers are also required to distribute written statements to employees and former employees covered during the plan year annually by January 31st following the end of the plan year. The statement must contain information from the returns submitted to the state. Employers can also satisfy this requirement by providing the statement required under the ACA and Section 6055 of the IRC (IRS Form 1095-B/C).
IRC Section 6055 ACA reporting applies to health insurance providers and employers that sponsor self-insured health plans, so it is unclear how employers not subject to IRC Section 6055 (such as fully insured employers) can utilize their federal ACA reporting to comply with the California reporting and distribution requirements. According to the bill, the Franchise Tax Board will prescribe additional guidance on the requirements for the returns and written statements.
Employers may contract with third party service providers, including carriers, to provide these returns and statements. Employers who fail to make the return as required, will be subject to $50 penalty per individual.
Employer Next Steps
The Tax Franchise Board plans to release additional regulations and guidance on the individual mandate reporting requirements. In the meantime, employers should be aware they must report on employer-provided coverage for California residents. Employers may want to consider contracting with a third party to perform some of these reporting functions.
Paid Family Leave Expansion
Beginning July 1, 2020, California’s Paid Family Leave (PFL) program will provide up to 8 weeks of wage replacement to eligible individuals who take time off to care for a seriously ill family member or to bond with a minor child within one year of birth or placement. This marks an increase from the current 6-week limit.
PFL is paid out of the State Disability Insurance Fund, which is funded through employee contributions (taken out by employers as payroll deductions). Required contributions are adjusted annually based on a formula designed to collect enough revenue to fund the program. Although the bill lowers the minimum reserve for the State Disability Insurance Fund to account for the increase in paid family leave benefits, it is unclear whether employee contributions will eventually increase.
Employer Next Steps
The PFL expansion may not impact employers’ current PFL obligations, which include taking payroll deductions and notifying employees. Employers should be on the lookout for any changes in PFL contributions to ensure that their payroll department makes the appropriate deductions.
Additional Resources
The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current legal developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog.
