IRS earlier this month quietly reversed its plan to reject 2016 tax returns that do not indicate whether the filers complied with the Affordable Care Act's (ACA) individual mandate.
Under the ACA's individual mandate, most U.S. residents must be enrolled in a health plan or pay a penalty. Those who did not have health coverage in 2016 will have to pay $695 or 2.5 percent of their household income—whichever is higher—when they file their 2016 taxes.
Tax filers are required to indicate whether they had coverage for the year on line 61 of their 1040 tax forms. While IRS in the past has not rejected tax returns missing the coverage data, some tax filing software would not allow users to file their returns if the information was missing, the San Francisco Chronicle reports.
IRS under the Obama administration had planned to not accept any 2016 tax returns that did not indicate whether filers were covered, had to pay a penalty, or were exempt from the individual mandate.
IRS reverses policy
IRS officials in a meeting with tax-preparation software companies on Feb. 3 announced that the agency will allow tax filers to submit 2016 returns without the coverage data. While IRS will not reject such returns, it will maintain the option to follow up with filers who do not indicate their coverage status, Reason reports.
IRS said its decision stemmed from a recent executive order directing federal agencies to "ease the burden" of the ACA. "The recent executive order directed federal agencies to exercise authority and discretion available to them to reduce potential burden," IRS official said, adding, "Consistent with 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." IRS said allowing filers to submit returns lacking coverage data will "minimiz[e] [the] burden on taxpayers, including those expecting a refund."
According to the Chronicle, tax-software companies will need to decide whether to block users from filing tax returns missing coverage data.
How to interpret Trump's executive order regarding the ACA
Andrew Townsend, a tax analyst at the software maker TaxAct, said the company does not plan to change its software to allow users to file returns missing the coverage data.
Julie Miller—a spokesperson for Intuit, the software firm that makes TurboTax's filing software—said TurboTax users beginning March 2 will be able to "e-file their return without indicating if they had health care coverage last year."
Drake Software on Thursday announced that it will update its programs to allow users to file returns without the coverage data. The company added that users who chose to do so "could receive communication from the IRS, experience delayed refunds, and face subsequent collection activity to recoup the individual shared responsibility payment, if the payment applies to the taxpayer's filing scenario."
Experts say new policy could create confusion, undermine ACA enrollment
While the move does not eliminate the individual mandate, some observers say the change could create confusion.
Edwin Park, vice president of health policy with the Council on Budget and Policy Priorities, called the policy "disturbing," adding, "It leaves individuals at risk for paying the penalty while at the same time, causing people not to enroll or stay enrolled because they think they are not subject to it." Park added that the change is one of a "number of things the administration is doing that we consider to undermine enrollment."
Further, Michael Cannon, health policy director at the Cato Institute, said federal law "does not allow the administration not to enforce the mandate, which it appears they may be doing here."
Similarly, Ryan Ellis, a senior fellow at the Conservative Reform Network, said, "It's hard to enforce something without information." However, Ellis said he does not think the policy change amounts to the administration not enforcing the mandate. "If the IRS turns a blind eye to people's status, that isn't quite not enforcing it," he said, adding, "It's more like the IRS wanting to maintain plausible deniability" (Pender, San Francisco Chronicle, 2/14; Suderman, "Hit & Run Blog," Reason, 2/14; Nather, "Vitals," Axios, 2/15; Morton, Washington Times, 2/14).
How to navigate the first 100 days of the Trump administration
Since Donald Trump won the presidential election in November, health care reform has since quickly risen to the top of the GOP's policy agenda—and heath care executives are grappling with a new sense of uncertainty.
While many unknowns will remain across the next few months and potentially even years, the first 100 days of the Trump administration will provide significant insight into the direction of reform efforts. Read our briefing to learn what five key issues you should watch.
Download the briefing
Next in the Daily Briefing
What providers should know about the medical marijuana legal landscape