The Affordable Care Act (ACA) imposes health insurance coverage mandates on individuals and employers, but to this point the IRS has been slow to enforce the mandates. That may no longer be the case as the IRS signals it is prepared to begin an enforcement effort in earnest. But now there is new word from Washington that Congress might yet excuse individuals and employers from having to comply.
Enforcing the Individual Mandate
Taxpayers demonstrate compliance with the ACA’s individual mandate by indicating, on Form 1040 or 1040-EZ, whether they had adequate health insurance for an adequate portion of the tax year, and calculating the appropriate penalty if they did not.
For the 2015 and 2016 years, the IRS’s approach was so mild-mannered it declined to reject Forms 1040/1040-EZ if the taxpayer outright failed to answer the question about health insurance. There remained a potential the IRS might audit the individual, of course, but it did not force the issue by compelling the taxpayer to answer the coverage question as a condition of submitting his or her tax return.
That is about to change. The IRS recently announced it would reject 2017 federal tax filings if the taxpayer failed to answer the question regarding health insurance coverage.
Enforcing the Employer Mandate
An internal Treasury Department assessment earlier this year concluded the IRS wasn’t yet in a position to make complete sense out of the tens of millions Forms 1095-C and 1094-C it had received from employers for the 2015 and 2016 years.
The IRS quickly responded that it was making progress, that the ACA remained the law of the land, and that the Service had every intention of enforcing the mandate. Recently, we’ve seen direct evidence of this, as several clients have received inquiries from the IRS regarding the employers’ 1094-C and 1095-C filings.
Congress and the On Again/Off Again Effort to Repeal the ACA’s Coverage Mandates
Each of the Congressional Republicans’ ACA repeal and replace efforts that stalled in Congress this year would have zeroed out the individual and employer mandate penalties, for noncomplying individuals and employers, and done so retroactively (at least for the 2016 year).
In the wake of the collapse of those efforts, the Senate appears to have reached a bipartisan deal to stabilize the individual health insurance markets. The National Association of Insurance Commissioners expressed its support of the compromise bill on Friday. Senate Majority Leader Mitch McConnell (R-KY) said this weekend he’s open to bringing the bill to a Senate vote if the White House supports it.
The White House, for its part, has flip-flopped on its support of the measure but this weekend suggested it might support it if the bill excused individual mandate penalties for 2017, and employer mandate penalties for this year and the two prior years.
Waiver of the penalties does not seem like the kind of issue that would trouble most Republicans, but even if there were a handful who would oppose the bill because it doesn’t go far enough to dismantle the ACA, those defections might be more than offset by at least a few Democrats. Some Democrats might be entirely willing to support a bill that helps fix, rather than dismantles, the ACA’s individual market reforms, even if the bill eliminates the ACA’s individual and employer mandate penalties.