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IRS Now Accepting Tax Returns Without Proof of Health Insurance

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IRS, taxes, health careThis post was prepared for PrimePay by Marathas Barrow Weatherhead Lent LLP, a national law firm with recognized experts on the Affordable Care Act. Contact Stacy Barrow at sbarrow@marbarlaw.com or Mitchell Geiger at mgeiger@marbarlaw.com.

The IRS will no longer reject tax filings of individuals who do not have health insurance as required under the Affordable Care Act (ACA) in direct response to the President’s January executive order to ease the burden of Obamacare.

The instruction for individual taxpayers involving the ACA has been to indicate on line 61 of their Form 1040 filing whether they had health insurance, had an exemption from coverage, or made a shared responsibility payment. Tax returns silent in that regard were rejected for processing and those taxpayers were forced to pay a tax penalty under the ACA’s individual mandate equal to 2.5 percent of household income or as much as $695 per adult and $347.50 per child under 18.

On February 15, the IRS announced that taxpayers would not need to fill out line 61 on form 1040 and that, starting this year, taxpayers that leave that line blank or do not have an attached exemption form included, will no longer be automatically rejected. The IRS said it still maintains the option to follow up with those who elect not to indicate their coverage status, although it's not clear what circumstances might trigger a follow-up.

The IRS said it was acting in direct response to the President’s executive order. The recent executive order directed federal agencies to exercise authority and discretion available to them to reduce potential burden. Consistent with that, the IRS decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer hasn’t indicated their health coverage status. The agency said the change to processing silent returns was also made to reduce the strain on taxpayers, including those expecting a refund.

The move has already raised questions about its legality.  While federal law gives the Trump administration the authority to provide exemptions from the mandate, the administration is still obligated to enforce the mandate. Unless the Trump administration maintains the mandate is unconstitutional, the Constitution requires them to enforce it. The IRS reinforced this sentiment, emphasizing that taxpayers are still required to pay the mandate penalty, if applicable.

The individual mandate is a key component of the ACA. The law requires health insurers to sell to everyone regardless of health history and offers subsidies to lower-income individuals in order to offset the cost of coverage. In order to prevent people from signing up for coverage only after getting sick, it also requires most individuals to maintain qualifying coverage or face a tax penalty.

Although the new policy leaves ACA's individual mandate in place, it may make it easier for individuals to go without coverage while avoiding the penalty. Essentially, if not explicitly, it is a weakening of the mandate enforcement mechanism.

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