July 17, 2018 | Posted in:

New Jersey Picks Up What Federal Government Put Down

Associate Partner Julie Strohlein, CPA explains the newly signed New Jersey Health Insurance Market Preservation Act.

One of the provisions of the Affordable Care Act (ACA) requires an individual to maintain qualifying health care coverage for himself and his family.  If the coverage is not maintained, he becomes liable for an individual shared responsibility payment which is calculated on the federal tax return.  This is essentially a penalty for not having health insurance.  The recently passed Tax Cuts and Jobs Act repeals the payment beginning in 2019.  Since the requirement and payment due under the ACA were federal provisions, this only affected a taxpayer’s federal tax return.  Until now.

NJ Establishes Shared Responsibility Tax

On May 31, 2018, Governor Murphy signed a bill called the “New Jersey Health Insurance Market Preservation Act” which establishes a state shared responsibility tax for New Jersey residents who do not have health insurance.  This becomes effective on January 1, 2019, which is the exact day that the federal law eliminates the payment.  The amount of the penalty tax is basically equal to the federal tax that was repealed by the federal government.

How Big is the Penalty?

The NJ responsibility tax will be the greater of 2.5% of applicable household income or $695 per taxpayer and $347.50 per child, up to a family maximum of $2,085, adjusted for inflation.

How Many Taxpayers Will this Affect?

Data for the ACA shared responsibility payment is only available through 2015.  In 2014, 221,150 New Jersey residents remitted a total of $51.1 million to the federal government for this penalty.  In 2015, 188,750 New Jersey residents paid $93.3 million.  We don’t know if the decline in numbers of payers was because more people obtained insurance in 2015 compared to 2014 or if there was in increase in taxpayers who qualified for one of the exemptions.

What are the Exemptions?

There are several exemptions to the law.  Taxpayers will not be liable for the penalty if they qualify for one of the exemptions.  These include religious objection, income below certain thresholds, or hardships.  The State Treasurer will determine the income threshold under which health insurance coverage is considered “unaffordable.”

Where Does the Money Go?

The bill states that any funds collected under this provision will be deposited in the New Jersey Health Insurance Premium Security Fund which establishes a reinsurance plan.  If the new fund is not created, the money will go to the Health Care Subsidy Fund which subsidizes children’s health insurance in the NJ FamilyCare Program.

Will NJ State Finances Improve?

Whether or not the state finances will improve as a result of this new penalty cannot be determined at this time.  If uninsured individuals decide to maintain their enrollment in NJ FamilyCare or to enroll now in order to avoid the penalty, the State expenditures will increase.  The State cannot predict how many taxpayers will not maintain their health care coverage after the federal mandate expires.  Also, there will be additional administrative cost incurred with the implementation of the bill.

Does this Affect NJ Businesses?

The Shared Responsibility Tax is imposed at the individual level.  A business will have very similar reporting requirements as they currently have under the ACA.  Basically, every applicable entity, including employers and insurers, will need to file a return with information about individuals and their coverage.  To minimize the reporting burden, the entities may be able to use the current federal reporting forms.  The difference will be that these will need to be filed with the State of New Jersey.

Contact your Alloy Silverstein accountant and advisor for application to your individual situation.


Associate Partner
Julie has over 20 years of experience in public and private accounting, representing varied clientele including the medical, legal, and real estate industries and trusts.
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JB Financial Associates is now Alloy Silverstein.
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