In what looks to be the first real blow to Obamacare before its inevitable death, the IRS is following President Donald Trump’s directive to ease up on the Affordable Care Act’s requirement that everyone have health care or pay a penalty.
The ACA requires most people to have health coverage, and to indicate whether they did by filling out line 61 of their 1040 forms when they file taxes. Following the president’s executive order last month which directed federal agencies to exercise authority and discretion available to them to reduce potential burden,” the IRS said in a statement to Yahoo Finance, it will allow electronic and paper tax returns to be accepted for processing in cases where a taxpayer doesn’t indicate their coverage status.
Since Obamacare’s implementation, individual taxpayers had to indicate whether they had health insurance, an exemption from coverage or made a “shared responsibility payment” (the fee for going without minimum health coverage) — in line 61 of Form 1040. An IRS spokesperson said that in recent years, tax returns that were “silent” in that regard were still processed. Last year, though, the agency initially put in place system changes for the 2016 tax year that would reject tax returns during processing when the taxpayer didn’t provide that information.
But following the president’s executive order, the IRS will now process returns without the coverage information, so they are “not systemically rejected, allowing them to be processed and minimizing burden on taxpayers, including those expecting a refund,” the IRS said.
It’s still law
The ACA law is still in effect, the IRS emphasized, until it’s changed by Congress, “and taxpayers remain required to follow the law and pay what they may owe.” Indeed, there’s still an obligation for taxpayers to report the months they were covered, months exempt and months with a shared responsibility payment, says Tara Straw, senior policy analyst at the Center on Budget and Policy Priorities.
Under the ACA those who are uninsured and do not meet one of the exemptions must pay a penalty. For 2016 it’s the higher of either: $695 per adult plus $347.50 per child, or 2.5% of household income.
The IRS said that when it has a question about a particular tax return, it might follow up with taxpayers after the filing process is done, which is how it says the agency has handled such questions in previous years.
What might be a question than the mandate is how tax preparers and tax software will handle this change, says Karen Pollitz, senior fellow at the Kaiser Family Foundation. Last year the IRS advised tax pros that starting with 2016 returns that would be electronically filed, line 61 could not be blank; new software coding meant that if the line wasn’t filled in, the return would not get processed. But now the agency is changing it back – so returns are still going to be processed as before, says Pollitz.