IRS won't reject tax returns if they do not include Obamacare disclosures

Posted February 18, 2017

Specifically, the IRS stated, "the IRS has decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn't indicate their coverage status".

It remains to be seen whether the IRS will follow up with enforcement of the tax penalty. "[The new rules] will help protect Americans enrolled in the individual and small group health insurance markets while future reforms are being debated".

Taxpayers have been required to include their health coverage status when filing tax forms. Insurers are anxious that the Trump administration could ease up on the mandate or create more exemptions to it. Line 61 of IRS Form 1040 requires taxpayers either to check a box certifying that family members had coverage during the year, or to enter their penalty, which is calculated on a separate form.

If you want to keep your health insurance status a secret from the IRS, the Trump administration just made it a little easier.

"While this announcement is consistent with the recent executive order, it is concerning to those who worry about stability in the ACA marketplace", said Nicole Elliott, a partner at the law firm Holland and Knight, who was a senior director of operations for the Affordable Care Act at the IRS during the Obama administration.

Over the last few weeks, the IRS has quietly changed its rules to allow tax filers to leave line 61 blank - the line on their 1040s indicating whether they had maintained healthcare coverage a year ago or paid the tax penalty, per Obamacare's requirements. The San Francisco Chronicle reported Tuesday: "In a February 3 meeting with tax-preparation software companies, the IRS said it would not reject silent returns this filing season, according to Andrew Townsend, tax analyst for software maker TaxAct".

The insurance industry has long decried these exemptions as loopholes that allow people to sign up for insurance only when they need it, then drop out of paying premiums once they do not.

"The mandate can only be weakened by Congress", says Ellis. "Unless the Trump administration maintains the mandate is unconstitutional, the Constitution requires them to enforce it". If not, they are asked to provide more detail: about how much coverage they had; whether they had been granted an exemption; or, if they owe penalties, how much.

The move has brought questions of legality since the White House is required to enforce the law since it has been deemed constitutional by the U.S. Supreme Court. This is a change to how the IRS is choosing to enforce it.

"It is still the law until it is not the law; we intend to follow it", he said. Even with this voluntary approach, the IRS collected individual mandate payments from 8.1 million tax returns in 2015 averaging $210 for a total of $1.7 billion, according to an analysis of IRS data by Investor's Business Daily. Meanwhile, Humana Inc. had threatened to unsubscribe from the Obamacare program by next year due to unprofitability, but with the new Trump changes, it is not clear whether it will review its chances.