As enforcer of Obamacare, the IRS faces limits
Americans love their tax refunds. I know I do.
So why is conservative talk radio host Rush Limbaugh advising his listeners to avoid them?
In a word, Obamacare.
“If you structure your taxes so that you do not get a refund, you do not have to buy insurance and you do not have to pay a fine cause they can’t collect it from you if you don’t have a refund due,” Limbaugh said in October, according to a transcript on his website.
Limbaugh is referring to the Affordable Care Act’s tax penalty, which will be imposed on people who don’t have health insurance this year and beyond.
I explained some of the particulars of the penalty in my last column. Above all, I tried to dispel the misconception that the 2014 fine is $95 per uninsured person. That’s not true for most people, who likely will owe hundreds, if not thousands, more.
This time, I explain how you’ll pay the fine – and whether the government will come after you if you don’t.
Q: I don’t have health insurance. How will I be taxed?
A: In the spirit of Obamacare, let me start with a caveat: Much of the fine print governing the tax penalty has not been finalized. The Internal Revenue Service says it will issue more guidelines later this year.
We do know that settling the penalty will become part of your annual income taxes, starting with the 2014 tax year.
That means you’ll actually declare this year’s insurance status and pay this year’s tax next year, when you file your 2014 taxes.
Q: How will the IRS know if I’m telling the truth about being insured?
A: The federal government isn’t going to rely on your word alone. Obamacare requires insurance providers to submit proof of coverage both to consumers and to the IRS.
Think of it like a 1099 form for health insurance.
“In order to enforce (the tax penalty), the IRS will need a lot of information they don’t currently collect,” says Roberton Williams, a senior fellow with the Urban-Brookings Tax Policy Center.
Don’t assume that “insurance providers” refers only to insurance companies. As Williams notes, some government programs (such as Medi-Cal, for instance) and some employers (such as my own), provide or offer health coverage.
They, too, must report, and the reporting must include how many months someone was covered during the year.
That’s a lot of new and different information pouring into the IRS. Does this sound like it could devolve into a royal mess? It does to me.
Consider Medi-Cal, the state’s health insurance for low-income Californians. It covers more than 9 million people now, and more join every day.
The Department of Health Care Services, which administers the program, already is sagging under the weight of its bureaucratic load. How will it do this, too?
The department is working out the details, says spokesman Tony Cava.
He notes that it will have some extra time to do so. The IRS has announced it will delay the reporting requirement for government agencies – and other insurance providers – until the 2015 tax year, meaning you probably won’t receive “health care 1099s” in the mail until 2016.
Q: How will the IRS collect the tax?
A: Here’s the rub.
The IRS has limited enforcement powers in this case.
“The law prohibits the IRS from using liens or levies to collect” the tax, the agency says. However “the IRS may offset that liability against any tax refund that may be due to you.”
There you have it. The IRS can grab the tax out of your refund, if you have one coming, but not much else.
“They cannot garnish your wages, go after your assets or even come knocking on your door and say, ‘Pay up’,” Williams says.
He notes, however, that most Americans who file taxes receive refunds, and he doesn’t anticipate many people will attempt to skirt the tax by fiddling with their tax withholding and other details.
All of this brings us back to Limbaugh, who, as you recall, is urging his listeners to avoid refunds.
To my knowledge, Limbaugh is not a certified public accountant, so, please, check with a tax professional first.