By Kim Dixon and Patrick Temple-West
WASHINGTON (Reuters) - The Internal Revenue Service issued final rules on Tuesday for the individual mandate of President Barack Obama's healthcare overhaul, one of the most contentious elements of the U.S. law set to go into effect next year.
A centerpiece of Affordable Care Act, also known as Obamacare, is a requirement that all individuals carry some minimum health insurance or pay a tax. The new system aims to provide insurance through state marketplaces and subsidies for tens of millions of Americans who lack it.
If individuals choose not to carry insurance, they are subject to a penalty, starting at $95 per person per year or 1 percent of income in 2014, whichever is greater, and eventually reaching $695 per person or 2.5 percent of income by 2016.
The IRS, which is administering parts of the law involving revenue collection, released the final rules spelling out the details of what constitutes minimum essential coverage, and how individuals are responsible for spouses, children and other dependents, among other topics.
The individual mandate is distinct from the employer mandate, which imposes a fee on most large employers that do not offer a minimum level of coverage. The Administration delayed that provision, putting off the effective date until 2015.
Backers of the law say that, unlike the employer mandate, the individual mandate is essential to ensure enough individuals are enrolled in the system to allow the online marketplaces to function.
The rules announced on Tuesday offered good news to employees getting health coverage through a union-sponsored plan. They clarify that these employees will not be penalized, said tax lawyers who reviewed the rules on Tuesday.
The IRS rules also said employees getting healthcare coverage from a temporary staffing agency are safe from penalties.
The 2010 healthcare law, backed by President Barack Obama, a Democrat, passed without any backing from the Republican Party, which is still is trying to derail the legislation, with little success.
"I believe the individual mandate will go into effect," said Tim Jost, a professor at Washington and Lee University law school, who backs the law.
"It is important for people to remember that it is phased in and the first year it has very little bite. Basically the idea is to make people realize that it is there."
That is very different from the employer mandate where the fees will be in full force immediately upon the effective date, he added.
(Reporting by Kim Dixon and Patrick Temple-West.; Editing by Howard Goller and Andre Grenon)