Last month, president Trump signed an executive order to start rolling back the “economic burden of the Patient Protection and Affordable Care Act (currently pending repeal).”
Soon after, the IRS released a statement saying it would no longer require taxpayers to check the box indicating whether or not each person listed on the tax return had minimum essential health coverage. The agency stated that: “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.”
In other words, the IRS is no longer forcing you to tell them if you had health insurance coverage in 2016.
As a reminder, when the Affordable Care Act was fully implemented, taxpayers were required to let the IRS know if each member listed on a tax return had health insurance or not. For those without coverage and without a viable exemption, a tax/penalty (known as the shared responsibility payment – SRP) was imposed through the tax return filing process. For the 2016 tax year, that penalty is equal to 2.5% of your adjusted gross income (AGI), or $695 per adult and $347.50 per child, up to a maximum of $2,085, whichever is higher.
The IRS notes that taxpayers are still required to pay the mandate penalty, if applicable. “Legislative provisions of the ACA law are still in force until changed by the Congress, and taxpayers remain required to follow the law and pay what they may owe,” the agency said.
That statement begs the question:
- If you didn’t have health insurance and weren’t eligible for an exemption, should you inform the IRS? Or, should you leave the box blank and hope they don’t follow up and try to collect the SRP?
Some Background on IRS Reporting Requirements
To help with tracking health insurance coverages for employers and taxpayers, the IRS began implementing Form 1095 (A, B, & C) into their reporting requirements.
In short, if you had health insurance through an employer, the employer provided a copy of Form 1095 to the IRS and to you. The IRS probably isn’t going to send you any correspondence (even if you forget to mark the box saying you have insurance) because there is no tax penalty for them to collect.
If you have health insurance through the Marketplace (healthcare.gov), you should have received a copy of Form 1095-A showing that you had insurance, as well as detailing the advanced premium tax credits that might have been paid on your behalf by the IRS to your health insurance provider. Those advanced premium tax credits would then need to be reconciled on your tax return to determine if too much or too little was paid to the insurance company based on your family size and income.
If you received advanced premium tax credits (APTCs), it’s probably best to report form 1095-A on your 2016 tax return. The IRS will have all documentation to show that you had insurance and will know the exact amount of APTCs paid.
If you must repay the APTCs on your tax return (because you had income exceeding the threshold for tax credits), you may decide it is worth the risk to leave the health insurance coverage box blank on your return. Just know that you might end up getting a letter after the filing season is complete. It will likely say that you owe repayment of the APTCs plus interest and late fees.
If you have a valid health insurance exemption, it would make sense to report the exemption on your return to prevent any future correspondence. If you don’t owe any tax, you might as well comply to avoid any future headaches.
What if you didn’t have health insurance coverage (or a valid exemption)?
What if you (and members of your household) did not have health insurance for 2016, and you have no valid exemptions to avoid the SRP? Should you report the lack of coverage and pay the penalty, or leave the box blank?
Short answer – it probably depends on your risk tolerance.
If getting any correspondence from the IRS is a terrifying thought, you can report no health insurance coverage and pay the penalty.
If you would rather take the risk and report nothing, the worst that could happen is a correspondence letter saying you owe the SRP plus late fees and interest for not paying on time.
Bottom line – No one is sure if the IRS has any sort of software/scanning ability to check all SSNs against a database of health insurance information. My guess would be that they are trying to gather this information, but I’m not sure if they have the resources in place to get the kinks worked out.
I recently informed several clients about the this new healthcare dilemma, and many have chosen to leave the box blank when filing their 2016 return.
We’re interested to know what you plan on doing – If you didn’t have health insurance coverage or a valid exemption in 2016, will you be leaving the health insurance questions completely blank on your tax return?