Obamacare Individual Mandate

[erchess]

I am reading the What's New In Depth course about Obamacare and I read that the Individual Mandate cannot be enforced by the IRS with Liens or Levies. I thought I understood a TV Talking Head to say that the IRS cannot question a taxpayer's allegation on the return that he or she had coverage. Is that wrong, or has there been a change or is that right?

[Koss]

Health Insurance Mandate

The relevant text of the law, which is 26 USC 5000A, says:

- - - -
(g) Administration and procedure
(1) In general
The penalty provided by this section shall be paid upon notice and demand by the Secretary, and except as provided in paragraph (2), shall be assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68.
(2) Special rules
Notwithstanding any other provision of law—
(A) Waiver of criminal penalties
In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.
(B) Limitations on liens and levies
The Secretary shall not—
(i) file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section, or
(ii) levy on any such property with respect to such failure.
- - - -

So it is correct that the IRS cannot use liens or levies to collect the penalty. And they cannot bring a criminal tax case.

But they can use any other measures available to them, such as seizing tax refunds.

I don't see anything that suggests that the IRS does not have the authority to "question the taxpayer's allegation on the return that he or she had coverage."

Insurance providers will probably be required to file an information return to report that an individual had coverage. It may be relatively easy for the IRS to determine whether an individual had coverage. And in an audit, the burden would fall squarely on the taxpayer to show that either they had coverage, or that they qualify for one of the exemptions.

In fact...

The text of the law cited above says that a taxpayer "will not be subject to any criminal prosecution or penalty" for failure to timely pay any penalty imposed by the law.

This means that if a taxpayer accurately reports that they had no coverage, but fails to pay the penalty, it will not be a criminal matter, and the IRS cannot use liens or levies to collect it.

But if a taxpayer states on the tax return that they had coverage when in fact they did not, then theoretically, they could still be subject to criminal prosecution for filing a false tax return. Furthermore, after adjusting the return in an audit to add the health care penalty, the IRS might be able to stack an accuracy-related penalty on top of it. And the text of the law may not prohibit the IRS from using liens and levies to collect the accuracy-related penalty.

BMK

[Koss]

Due Diligence?

The penalty for not having minimum coverage becomes applicable in the calendar year 2014. So we won't see it on a tax return until we begin preparing returns in January 2015.

But it certainly raises questions about due diligence, i.e., should the preparer accept the taxpayer's assertion that they had minimum coverage? Or do we need to see documentation, such as an information return from the insurance carrier?

When a client tells you that they made an IRA contribution, do you require documentation? I don't.

Or what about a rollover contribution? If it wasn't a "hands-free" rollover, the 1099-R may have code 1. If they got the distribution in late December, they might have made the rollover contribution just a few days before coming to your office to have their return prepared. The institution is not yet required to report the transaction to the IRS, but they will eventually. Do you ask for proof of the rollover?

I don't. I don't think I need to.

Even if we make the reasonable assumption that there will be some sort of required information return from the insurance companies, there will still be cases where a taxpayer really had coverage, but for some reason, did not receive the information return.

I guess we'll just have to wait and see how this plays out...

Maybe the IRS will require data from the insurance carrier's information return in order to e-file the tax return. Kind of like how you can't e-file without Form W-2. (Of course, there would be a workaround, analogous to a substitute Form W-2, for someone who claims that they tried to get the information return from the carrier but couldn't.)

BMK

BMK

[Gary2]

For what it's worth, most insurance companies writing medical insurance in MA are already issuing MA 1099-HC forms, verifying that the coverage satisfies minimum standards, and indicating which months were covered.

[Golden Rocket]

Employee Withholding

Can I add to this thread yet another question about Obamacare employee contributions?

There is in this wonderful legislation a clause which limits the amount an employer can withhold from the employee to recover the cost of health insurance coverage.

The amount in the law is 9.5%, but this is 9.5% of the employee's HOUSEHOLD income. I have yet to understand what is meant by "Household" income. Does this include the income of a spouse, non-taxable income, children living at home, or what??? I have asked this question early on but at the time no one knew or could give a straight answer. I think everyone was as dumb as me, if possible.

But as the time approaches, I ask the question again because there might be more people who know. A couple observations...

1) Employers, especially in recent years, have been pushing as much of the medical insurance cost onto employees as they possibly can. This essentially means they will be limited unless SOMEONE at the employee's house starts to make more money.
2) How are employers going to know what an employee's spouse is making?
3) It would appear there would be an unequal amount of withholding from each employee. I think §125 would not be violated but don't know.