President Obama recently signed the Patient Protection and Affordable Care Act of 2010 requiring virtually every American to purchase health insurance. Now an enforcer is needed.
The Internal Revenue Service might not be the best agency to administer that law given its already enormous workload, but it is still the logical choice. That puts tax returns in the spotlight as the vehicle through which the federal government will collect information about who has met Obama's demand for health insurance, and penalize those who fail to do so.
By some estimates, the federal government will need to hire approximately 16,500 new revenue agents over the next decade to fully staff the health insurance police. But, whether they like it or not, the true front men and women for the health insurance agenda will be the nation's tax professionals.
"The way this will work is the Department of Health and Human Services and the insurance companies will work together to determine what adequate health coverage is. When someone files their return, the insurance company will send us a little box that is checked; a yes-no question that says do they have coverage or not," IRS Commissioner Douglas Shulman explained in a statement to Congress.
"They'll send it to the individual. The individual will attach it to their return, and they'll send it to us...it's just like a 1099 where you get information reporting about the interest that you have on the bank account," Shulman said. "We will run matching programs around that and if somebody doesn't have coverage, they will either pay the penalty that they owe or they'll get a letter from us saying that [they] owe this amount."
Individuals who do not meet the Obama Administration's "minimum essential coverage" will be charged penalties, which begin relatively low in 2014, the greater of $95 or 1% of household income, and balloon in 2016 to the greater of $695 or 2.5% of household income.
How will the penalties be collected? According to recent comments from Steven T. Miller, IRS deputy commissioner for services and enforcement, Congress will not empower the IRS to audit people to see if they are covered, or to impose liens or levies or to collect penalties. Instead they'll just grab the money right out of your refund if you are entitled to one.
CPA David H. Williamson, who has a tax practice in Redding, California, weighed in on the IRS plan to put him and his colleagues on the front lines. Williamson told AccountingWEB that the plan is workable, but distasteful to him.
"My tax software company will simply add a question to the tax organizer which asks whether they have qualifying insurance coverage and I'll check the appropriate box based on their answer. Will I like it? Definitely not," Williamson said. "It puts a tax preparer in the uncomfortable position of telling a client that the refund they were expecting was devoured by the penalty for not having qualifying coverage. No one likes being the bearer of bad news."
Williamson predicts that at some point, there is another shoe that will drop.
"I don't think the IRS will be satisfied with just being able to deduct the penalty from refunds," he said. "Anyone who is determined to go without coverage after getting smacked with the penalty is simply going to adjust their withholdings the following year so they are not due a refund. The IRS will have no way to collect the penalty since they can't impose liens or levies for it."
So how will the Obama Administration enforce penalties on those who don't have refunds to confiscate? If there is an answer, it has yet to be revealed.