Is This the End of the Individual Mandate?
The IRS recently announced that it will not reject 2016 tax returns that are silent on whether the taxpayer has complied with the individual mandate of the Affordable Care Act. These provisions require taxpayers to have qualifying health care coverage, qualify for an exemption, or pay a penalty. The IRS previously stated that such “silent” returns would be rejected; however, the IRS has shifted its policy to comply with a recent Presidential executive order. While the individual mandate is still law, it is possible that the IRS may not enforce the penalty. Caution is advisable. It is still very early in this process and guidance is still vague.
Background on the Individual Mandate
On their tax returns, taxpayers who had qualifying health coverage for every month of 2016 for themselves, their spouses, and dependents had to check the box on line 61 (Health Care: Individual Responsibility). A taxpayer that couldn’t check the box because there were coverage lapses must generally either claim a coverage exemption or pay the penalty for the lapse months.
The Executive Order
President Trump’s first executive order stated his intent to seek prompt repeal of the ACA. The executive orders stated:
To the extent permitted by law, the Secretary of Health and Human Services and the heads of all other executive departments and agencies with authorities and responsibilities under the Act shall exercise all authority and discretion available to them 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.
While the Trump Administration cannot simply repeal the individual mandate, which is part of a law passed by Congress, they could make the regulatory exemptions from it so broad that the exemptions swallow the rule and the individual mandate is essentially unenforced. Possibly…
One cause for concern is that even though the IRS will now process returns that are silent on compliance with the individual mandate, the IRS says that if it has questions about a tax return, taxpayers may receive follow up questions and correspondence at a future date.
Based on existing law prior to the executive order, the IRS will not issue liens or levies to collect the penalty and they will not initiate audits based on nonpayment of the penalties. The IRS’ only recourse for nonpayment of the penalty is to reduce refunds owed to taxpayers.
If you have any questions on how this applies to you, please feel free to give us a call at 248-538-5331.