It is a question many people have been asking since March of 2010, when President Barack Obama signed the Affordable Care Act (ACA) into law.
How will the Internal Revenue Service enforce the law’s mandate requiring Americans to buy health insurance?
According to a high-ranking IRS official, the agency plans to go easy with health care enforcement.
“We will not use levies, liens or criminal prosecutions if taxpayers have unpaid amounts related to the individual-coverage provision,” Steven Miller, an IRS deputy commissioner, said this month at a House Ways and Means subcommittee hearing.
Miller also said that taxpayers will get a form at the end of every year from their insurer to use when they prepare their tax returns. “It is important to note that the information that insurers provide to the IRS will show the fact of insurance coverage, and will not include any personal health information,” he explained.
The IRS will match what is reported on a tax return with the information reported by insurers. The agency will then follow up by letter with taxpayers “who appear to have overpaid, underpaid or were not eligible for an exemption,” Miller said, adding that the letters will allow taxpayers time to gather the information needed to respond or get help in understanding the details of the new health care law.
Still, the “individual-coverage provision” of the law requires that uninsured citizens who fail to buy health coverage must pay the federal government either $95 or one percent of their taxable household income in the first year the law takes effect. The penalty increases to $695 per person by 2016, with the maximum amount being the greater of either $2,085 per household or 2.5 percent of the household’s income.
If levies, liens or criminal prosecutions are not used for those who fail to get health insurance, how will the IRS collect penalties?
Lawmakers on the House Ways and Means subcommittee expressed other concerns as well.
“The President’s health care law has put the federal government in charge of approving health insurance plans, subsidizing them, punishing those who do not buy government-approved plans, and many other aspects of our health care system,” said subcommittee chairman Charles Boustany, Jr., a former surgeon and owner of a small medical practice in Louisiana.
In addition to creating new burdens on the Internal Revenue Service, Boustany said the President’s health care law has led to new tax rules and regulations that will pose significant challenges to both individuals and job creators. “The compliance burden will add nearly 80 million man-hours each year to individuals and job creators. Eighty million hours that won’t be spent creating new wealth, providing health care, or doing anything productive. Eighty million hours simply complying with new rules from Washington,” he said.
Scott Hodge, president of the Tax Foundation think tank, expressed doubts about the IRS’s fitness for handling the new tasks brought on by the ACA. “Ironically, while most everyone agrees that the Tax Code is badly in need of simplification and that the IRS is already overburdened, the Affordable Care Act has saddled the agency with duties that are beyond its core competency and has set it up for failure.”
Hodge added, “While we can never anticipate every unintended consequence of legislation, it is fairly easy to predict that the ACA will lead to more Americans taken off the tax rolls and made more reliant on the IRS for much of their income. And it will produce more fraud, abuse, and improper payments from programs that should not be delivered through the Tax Code in the first place.”