Obamacare: Penalty For Not Being Insured In Disarray
Background: The individual shared responsibility provision requires you and each member of your family to do at least one of the following:
- Have qualifying health coverage, called minimum essential coverage
- Qualify for a health coverage exemption
- Make a shared responsibility payment with your federal income tax return for the months that you did not have coverage or an exemption.
If you do not, you are subject to the Code Sec. 5000A Shared Responsibility Payment, aka the penalty for not being insured.
Penalty Enforcement - For a joint return, the individual and spouse are jointly liable for any penalty payment. Under Sec 5000A(g), the penalty for failing to carry health insurance “shall be paid upon notice and demand by the Secretary, and shall be assessed and collected in the same manner as an assessable penalty” under Code Sec. 6671 through 6725. Thus the IRS will not be permitted to:
(i) File a notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty, or
(ii) Levy on any property of a taxpayer with respect to such a failure.
However, the authority to offset refunds or credits is not so limited. Noncompliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code, and interest does not accrue for failure to pay such assessments in a timely manner (Committee Report). Therefore, enforcement is generally limited to seizing a refund.
Case At Hand: On January 20, 2017, President Trump signed his first executive order directing the Secretary of Health and Human Services and other department and agency heads to exercise all available authority and discretion to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.”
On the IRS website, the IRS has announced it is reviewing the president’s executive order to de-termine the implications. Earlier this year, the IRS was rejecting returns during processing in in-stances where the taxpayer didn’t provide information related to health coverage. However, the IRS reversed that position and is now accepting both electronically filed and paper filed returns that are silent as to health care coverage.
At the same time the IRS cautions that legislative provisions of the ACA law are still in force until changed by Congress, and taxpayers remain required to follow the law and pay what they may owe.
The IRS also cautions that although they are processing silent returns, taxpayers may receive follow-up questions and correspondence at a future date, after the filing process is complete.
What Should a Tax Preparer Do? As is all too often the case, the tax preparer is left holding the bag in a quandary about what to do. But keep in mind, as mentioned above, that the ACA law is still in force until changed by Congress. So depending how strongly you feel about the law being changed, here are some possible scenarios and repercussions:
Taxpayer’s Family Is Fully Insured – This one is easy: check the box and proceed.
Taxpayer’s Family Is Not Fully Insured and Taxpayer Has a Refund –
- Information related to health coverage is included - If the return includes the information related to health coverage and there is a penalty, the penalty will be withheld from the refund. The taxpayer can hope the penalty will be refunded if the law is revised.
- Silent - If the return is submitted silently, then the penalty will not be computed and will not be withheld from the refund. One can assume that if the law is not revised, the IRS will request that information and compute the penalty. However, per Sec 5000A(g), no penalty or interest can be assessed, and the only collection means available to the IRS is seizing a future refund.
Taxpayer’s Family Is Not Fully Insured and Taxpayer Has a Tax Due –
- Information related to health coverage is included - If the return includes the information related to health coverage and there is a penalty, the penalty will be added to the tax due amount. The taxpayer can pay the entire amount and hope the penalty amount will be refunded if the law is changed.
- Silent - If the return is submitted silently, then the penalty will not be computed and will not be added to the tax due. One can assume that if the law is not revised, the IRS will request that information and compute the penalty. However, per Sec 5000A(g), no penalty or interest can be assessed, and the only collection means available to the IRS is seizing a future refund.
Lee Reams Sr.
Lee T. Reams is the Chief Technical Officer of ClientWhys. He is also an Enrolled Agent having managed a 600-plus client tax practice. Educated as an engineer, with a Bachelor's Degree in Mechanical Engineering, Lee left his engineering career in 1975 to expand his part-time tax practice into a full-time career.