In previous seasons, processing of tax returns without the health care coverage box checked slowed down processing of returns but it didn’t halt processing. In many situations, the taxpayer received a letter asking for payment of the health care penalty or proof that the penalty was not owed. That was typically after any refund due, without taking into account a penalty, was already paid.
In 2017, health care reporting will be enforced on all returns whether e-filed or paper filed.
The taxpayer will have to indicate on their tax return that they and everyone claimed on their return had health care coverage, or qualified for an exemption for coverage, or will make a shared-responsibility payment.
For e-filed returns, I would guess that the software will prevent e-filing unless the above conditions are met.
For paper filed returns, the IRS will not accept returns that omit this information. So, for returns where there is a tax owed, the return will be considered unfiled and late payment and late filing penalties will be assessed. For returns where a refund is expected, no refund will be paid as the return will not be processed.
Penalties for not having health care in 2017 are assessed as follows:
There are 2 ways to calculate the penalty and you pay whichever is highest.
1) Percentage of income,which is:
2.5% of household income up to the total yearly premium for the national average price of a Bronze plan sold through the Obamacare marketplace, or
2) per person,calculated as
- $695 per adult and $347.50 per child under 18 up to a maximum of $2,085
As many are aware, it is often cheaper to pay the penalty rather than purchase the health insurance. Obviously this is a risky strategy but a common one, especially for young people.
What will happen when and if Obamacare is repealed remains to be seen. Trump’s executive actions allowing purchase of health plans across state lines in the case of affiliated businesses and/or allowing a reduction in mandates will not be implemented for some time. Lawsuits and state bureaucracies will certainly result in long lead times before any benefits begin to be seen.
AFS Tax Preparation