The Obama administration may give a little wiggle room on some new Obamacare requirements this year — but not when it comes to the law’s mandate to get insured or otherwise be penalized.
The IRS is just starting to learn how many Americans will have to pay a penalty for lacking health insurance in 2014, the first year of the law’s individual mandate. Top health and tax officials said Wednesday they expect 2 to 4 percent of all tax filers — which could equate to as many as 6 million Americans — to pay a fine.
While there was some speculation that the agency would turn a blind eye to violations in the mandate’s first year, the officials didn’t indicate there would be any special leniency for those who fail to buy coverage.
Nor is that the expectation of tax preparation companies, who are playing a major role in helping people enroll.
“I think that’s what we called a tax community hopeful aspiration,” said Mark Steber, chief tax officer for Jackson Hewitt. “The simple fact of the matter is there is nothing official that says the IRS is not going to enforce the law as it’s written.”
This year the penalties will equal $95 or 1 percent of income above the filing threshold, which would equal about $400 for a person earning $50,000. The fee rises next year and again in 2016.
Firms like Jackson Hewitt and H&R Block have about two more weeks to urge uninsured tax filers to buy health insurance coverage to avoid paying a penalty next year, too. Enrollment in the state-based insurance marketplaces is slated to end Feb. 15.
But that may be one area where the Obama administration grants some wiggle room. Officials left the door open Wednesday for extending the deadline for some people.
“We’re not making a decision on that,” a senior IRS official said. “I think it would be a mistake for people to assume they have opportunities beyond Feb. 15. We’ll deal with special considerations when we get past Feb. 15.”
And the IRS may be giving more leniency in some other areas, too. On Monday, the agency issued a notice that says people who owe money because they collected too many insurance subsidies will be exempt from a late penalty for paying their bill after April 15.
That move caught the eye of some Republicans, who have long been suspicious of the IRS and its major role in carrying out the Affordable Care Act. Finance Committee Chairman Orrin Hatch wrote to the agency last week, asking it to explain the reason for the move and how many people it expects to owe subsidy payments back to the federal government.
“What are other instances when the IRS has decided to waive tax penalties for such a large group of taxpayers without requiring them to show reasonable cause?” the Utah Republican wrote.
The IRS is also allowing tax filers to indicate they’re exempt from the coverage mandate, even before they have documentation from their exchange saying so. People can file their tax returns, and once exchanges approve the exemption, they can notify the IRS retroactively.
“The penalty is definitely being collected this year and it’s being enforced, but there’s also a recognition that some people do qualify for exemptions,” said Lindsey Buchholz, principal tax research analyst at H&R Block’s Tax Institute.
There are a number of exemptions from the individual mandate, including a hardship exemption for those who couldn’t afford coverage and exemptions for religious reasons.
On a normal year, the IRS has a big job with processing around 150 million tax returns. The job’s even bigger this year as it enforces some of the healthcare law’s biggest requirements. Sources close to the agency say things are going better than expected. The agency has received about 10 million electronic tax returns so far, and of those, several hundred thousand are from filers who collected insurance subsidies, they say.
Still, it’s early in the tax-filing season, and officials say they just don’t have enough information yet to know exactly how many people will face major complications due to the law. For the vast majority of people with employer-sponsored coverage, the only part of the Affordable Care Act they’ll encounter is checking a box saying they had coverage.
But people with exchange coverage could face more complications if they went through any major life changes — like getting a pay raise or adding a dependent — and didn’t report it to the marketplace for a subsidy adjustment.
“What we don’t know is how many people didn’t come back to update their information,” said Andy Slavitt, deputy administrator for the Centers for Medicare and Medicaid Services. “For the first time, people are going through this process.”
