Pub L 111-148: Tax Rules for Individuals and Businesses

Public Law 111-148, the Patient Protection and Affordable Care Act (ACA), was signed into law on March 23, 2010. The law aimed to increase the number of Americans with health insurance and slow the growth of healthcare costs. It restructured the private insurance market, expanded public programs, and created new ways for individuals and businesses to purchase regulated health plans. The ACA established a system of shared responsibility among individuals, employers, and the government, and introduced new consumer protections, such as prohibiting insurers from denying coverage for pre-existing conditions.

Key Provisions for Individuals

The law established the Health Insurance Marketplace, an online platform where individuals and families can compare and purchase private health insurance plans. The Marketplace categorizes plans into four “metal” tiers: Bronze, Silver, Gold, and Platinum, allowing consumers to compare options based on price and coverage. States may operate their own Marketplace or use the federal platform, HealthCare.gov.

The Premium Tax Credit (PTC) is a refundable credit that helps eligible individuals and families afford premiums for plans purchased through the Marketplace. Through 2025, the rule limiting the credit to those with incomes at or below 400% of the federal poverty level (FPL) is suspended. Individuals with incomes above 400% of the FPL may qualify if a benchmark plan’s premium exceeds 8.5% of their household income. To be eligible, individuals must have household incomes of at least 100% of the FPL and not have access to other qualifying coverage, like Medicare, Medicaid, or an affordable employer-sponsored plan.

Taxpayers can receive the PTC as advance payments sent directly to their insurance company to lower monthly premiums. Alternatively, they can pay the full premium each month and claim the entire credit on their annual federal income tax return.

At tax time, a reconciliation of advance payments is required. The Marketplace sends Form 1095-A, Health Insurance Marketplace Statement, which provides the information needed to complete Form 8962, Premium Tax Credit. This form must be filed with the tax return. The reconciliation on Form 8962 compares the advance payments received with the actual PTC the taxpayer is eligible for based on final household income.

If advance payments were less than the allowed credit, the difference increases the tax refund or lowers tax due. If the payments exceeded the credit, the taxpayer must repay the excess amount, subject to certain income-based limitations. Failing to file Form 8962 to reconcile these payments can cause a loss of eligibility for future advance credits.

Cost-Sharing Reductions (CSRs) are separate subsidies that lower out-of-pocket expenses like deductibles and copayments. Eligibility is limited to individuals with household incomes between 100% and 250% of the FPL who are also eligible for the PTC. To receive these benefits, an individual must enroll in a Silver-level plan through the Marketplace. The level of assistance is tiered based on income, with those at lower income levels receiving greater reductions.

The law originally included an Individual Shared Responsibility Provision, which required most Americans to have health coverage or pay a penalty. The Tax Cuts and Jobs Act of 2017 reduced this penalty to $0, starting with the 2019 tax year. While the requirement to have coverage technically remains, there is no longer a federal tax penalty for being uninsured.

Key Provisions for Businesses

The Employer Shared Responsibility Provisions (ESRP) apply to Applicable Large Employers (ALEs). An employer is an ALE if it employed an average of at least 50 full-time employees, including full-time equivalent (FTE) employees, during the prior year. This status applies to for-profit, non-profit, and government employers. To determine its status, an employer combines its full-time employees (averaging 30+ hours per week) with its FTEs. The number of FTEs is found by aggregating the hours of all part-time employees in a month and dividing the total by 120.

An ALE may face a penalty if it fails to offer minimum essential coverage to at least 95% of its full-time employees and their dependents, and at least one full-time employee receives a Premium Tax Credit (PTC). This penalty is calculated monthly and applied to the total number of full-time employees, minus a statutory reduction of 30 employees.

A second penalty applies if an ALE offers coverage, but it is either unaffordable or does not provide minimum value. For 2025, coverage is unaffordable if the employee’s contribution for the lowest-cost, self-only plan exceeds 9.02% of their household income. A plan lacks minimum value if it covers less than 60% of total benefit costs. This penalty is calculated only for each full-time employee who receives a PTC. An ALE will not be subject to both penalties in the same month.

ALEs must file information returns with the IRS and provide statements to their full-time employees using Form 1094-C and Form 1095-C. Form 1094-C is a transmittal that summarizes the employer’s compliance data for the year. Each full-time employee must receive a Form 1095-C, which details the health coverage offered to them on a month-by-month basis. The IRS uses this information to administer ESRP penalties, and employees use it to help determine their eligibility for the PTC.

The Small Business Health Care Tax Credit encourages smaller employers to offer health insurance. To be eligible, an employer must:

• Have fewer than 25 FTE employees
• Pay average annual wages below an inflation-adjusted threshold
• Contribute at least 50% of the premium cost for employee-only coverage
• Purchase coverage through the Small Business Health Options Program (SHOP) Marketplace

The maximum credit is 50% of premiums paid for for-profit employers and 35% for tax-exempt organizations. The credit is largest for the smallest employers and is claimed using Form 8941, Credit for Small Employer Health Insurance Premiums.

Tax Provisions and Funding Mechanisms

The Net Investment Income Tax (NIIT) is a 3.8% tax on certain net investment income for individuals, estates, and trusts with income above set thresholds. The tax applies to the lesser of the person’s net investment income or the amount their modified adjusted gross income (MAGI) exceeds the threshold. The thresholds are not indexed for inflation and are $250,000 for married filing jointly, $125,000 for married filing separately, and $200,000 for all other filers.

Taxpayers subject to the NIIT file Form 8960, Net Investment Income Tax. Net investment income includes items like interest, dividends, capital gains, and rental income, but not wages, self-employment income, or distributions from most qualified retirement plans.

The Additional Medicare Tax is a 0.9% tax on wages, compensation, and self-employment income above certain thresholds. It is paid only by the employee, with no employer match. The income thresholds are $250,000 for married couples filing jointly, $125,000 for married individuals filing separately, and $200,000 for all other filers.

Employers must withhold this tax from an employee’s wages once their pay exceeds $200,000 for the year, regardless of filing status. Taxpayers use Form 8959, Additional Medicare Tax, to calculate their final liability on their tax return.

The law was originally funded by other provisions that have since been repealed. These included a 2.3% excise tax on the sale of certain medical devices, which was permanently repealed in late 2019. Other repealed measures included an annual fee on health insurance providers and a proposed tax on high-cost employer-sponsored health plans.