On January 20, 2017, his very first day in office, President Donald Trump signed an executive order giving the Department of Health and Human Services as well as other federal departments and agencies including the IRS the authority to roll back the enforcement of certain Affordable Care Act requirements. IRS Commissioner John Koskinen responded to this directive almost immediately by announcing that, although the agency was being allowed to use its discretion as far as enforcing the income tax reporting requirements associated with Obamacare, he did not think that the collection of individual responsibility payments would be significantly affected for the 2017 tax season. Recently, however, Koskinen has issued a more specific statement, announcing that the at IRS will, in fact, accept and process 2016 tax returns that do not indicate the status of the taxpayer’s healthcare coverage. Only time will tell how this increased leniency will affect the collection of penalty payments for the current year.
Although one of the central campaign promises of Trump’s candidacy was that he would take immediate steps to repeal the Patient Protection and Affordable Care Act, this is an action must be approved by both houses of Congress and could take a significant amount of time. In addition, the process is very likely to come up against numerous stumbling blocks. For example, the Congressional Budget Office recently issued a report saying that retaining the insurance reforms implemented with Obamacare while repealing the associated subsidies and penalties with would increase both insurance premiums as well as the number of uninsured taxpayers. According to the data collected in this study, premiums would nearly double over the next ten years and the number of people without health insurance coverage would increase to over 30 million. In addition to negative findings such as this, many legislators have indicated that they do not feel comfortable with moving toward a repeal of Obamacare until a suitable alternative is in place.
Faced with time constraints and obstacles such as those described above, Trump signed an executive order giving various federal agencies leniency and discretion in enforcing the existing healthcare directive. The order specifically directs the heads of these organizations to “delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax penalty or regulatory burden” on healthcare providers, health insurers or recipients of health care services. As an agency targeted by the executive order, this language allows the IRS a certain amount of latitude in terms enforcing the income tax reporting requirements specified by the Affordable Care Act. In response, IRS Commissioner John Koskinen has announced that the agency will process 2016 tax returns even when the line item indicating healthcare coverage is left blank, an omission that would previously have resulted in a kickback of the return.
Although taxpayers whose tax returns are processed without indicating healthcare coverage will avoid payment of the individual responsibility payment, it is projected that the change will have little effect on tax revenue collected during the 2017 tax season. While the 2016 shared responsibility penalty can be as much as $2085 or 2.5% of a taxpayer’s adjusted gross income, whichever is greater, it is expected that the overall effect of not collecting the penalty from those who would have owed it under the previous guidelines will be small. This is due to the fact that approximately 90% of taxpayers would not have been assessed the penalty in the first place due to the fact that they have either valid healthcare coverage or a qualifying exemption.
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