Skip the health insurance tax question? Not so fast
NEW YORK (Reuters) – With the fate of the Affordable Care Act up in the air after President Donald Trump took office in January, some taxpayers skipped a question on their 2016 returns that asked them to certify whether they had health insurance.
Now, individuals who did may be facing a tax bill that could run into the hundreds of dollars, or even thousands if family members are included.
The Internal Revenue Service says it is starting to catch up with taxpayers who left the healthcare question blank. It has issued guidance that it will not accept so-called “silent returns” in the upcoming 2018 filing season.
Under guidance from an executive order from Trump issued in late January 2017, the Internal Revenue Service was to accept the returns during last year’s filing season, even though the outgoing Obama administration had ordered the IRS to stop processing them.
Some platforms, like Jackson Hewitt‘s, never changed their software to accept silent returns, but others like TurboTax allowed them to go through, cautioning users that the law had not changed. Jerry Gaddis, a tax preparer with an enrolled agent designation from Key Largo, Florida, made his clients who wanted to skip the question sign a disclaimer saying they understood the risks.
“The IRS will not accept the electronic tax return until the taxpayer indicates whether they had coverage, had an exemption or will make a shared responsibility payment,” the IRS said in a statement issued to Reuters on Wednesday. “In addition, returns filed on paper that do not address the health coverage requirements may be suspended pending the receipt of additional information and any refunds may be delayed.”
The IRS started sending out letters in September to 130,000 taxpayers who did not address the healthcare requirement in 2014 and/or 2015, it says.
People without coverage, who do not qualify for an exemption, are subject to a penalty based on 2.5 percent of income or $695 per adult, whichever is higher.
A few of Ricardo Rivas’ tax clients got those letters for 2015 returns. The enrolled agent from San Antonio said that clients skipped that question for a variety of reasons – some to avoid the penalty and others because they thought the ACA requirements were going away. Some found it too confusing because they had partial coverage, or coverage for some family members but not others.
The letters from the IRS are very politely worded, said Gaddis, whose clients have also received them after skipping the healthcare question.
Reminder: the IRS never calls (reut.rs/2xz7xPW)
“They propose a change to what you owe, and then go through it in detail,” Gaddis said of the letters.
Unless the client can prove that they had insurance or can claim an exemption, Gaddis recommended paying whatever is owed, or risk penalties and fees compounding.
“In theory, it could spiral, like any other balance due to IRS,” Gaddis said. He noted that the statute of limitations for the IRS to collect from taxpayers is 10 years, so the agency could come after a person for missing payments for a long time to come.
In some cases, people who skipped the healthcare question to avoid paying a penalty might have qualified for one of 30 exemptions to offset it, said Lisa-Greene-Lewis, CPA and tax expert for TurboTax. She also noted that one way to avoid this issue for the next tax year is to make sure to get covered in the upcoming enrollment period for health insurance from Nov. 1 to Dec. 15, 2017.