Paul L. Caron

Tuesday, March 30, 2010

Joint Tax Committee: IRS Lacks Authority to Enforce ObamaCare's Individual Mandate

Big Government, Joint Committee on Taxation Confirms that ObamaCare Does Not Enforce Individual Mandate:

One of the more controversial elements of ObamaCare is the mandate for most individuals to purchase insurance beginning in 2014. There is really no precedent for a federal mandate of this scale requiring individuals to purchase a product or service. So not surprisingly a number of state Attorney Generals have indicated they will be filing suit questioning the constitutionality of this provision. ...

Republicans for their part have focused on the fact that this mandate will be enforced via threat of a financial penalty (or tax), with the added assumption that it is the dreaded IRS which will be enforcing this. And sure enough, it’s already been reported that the IRS anticipates hiring possibly in excess of 15,000 additional personnel to deal with the collection of the individual mandate, and other tax related provisions within the bill.

However, it turns out that the Democrats who crafted this bill significantly – and I mean significantly – hamstrung the ability of the IRS or any other federal agency to enforce or collect on this mandate. Here is what the federal Joint Committee on Taxation had to say about this issue in a report released earlier this week:

Individuals who fail to maintain minimum essential coverage in 2016 are subject to a penalty equal to the greater of: (1) 2.5% of household income in excess of the taxpayer’s household income for the taxable year over the threshold amount of income required for income tax return filing for that taxpayer under section 6012(a)(1); or (2) $695 per uninsured adult in the household. The fee for an uninsured individual under age 18 is one-half of the adult fee for an adult. The total household penalty may not exceed 300 percent of the per adult penalty ($2,085). The total annual household payment may not exceed the national average annual premium for bronze level health plan offered through the Exchange that year for the household size…

The penalty applies to any period the individual does not maintain minimum essential coverage and is determined monthly. The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.

According to a footnote in the report, “subtitle F of the Code” is the portion of the tax code which grants the IRS the authority to assess and collect taxes. In other words, as the law is written the federal government has no legal authority to enforce this mandate, nor will it have any recourse to collect any penalties that go unpaid!

Candidate Obama opposed an individual mandate during the presidential campaign:

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Tracked on Mar 30, 2010 5:57:53 AM


I'm not sure this is as big a deal as the links have been making this out to be. The lien and levy enforcement provisions for failure to pay the penalty may have been exlcluded because they won't be necessary.

The proof of insurance will have to be reported with the federal income tax return.

The penalty is based as a percentage of household income above the filing threshold.

Thus, if you don't provide proof of insurance with the return, the IRS can simply compute the penalty as part of the tax on the return, apply your credits to the penalty first, and leave you with a reduced credit or ordinary tax due that is subject to the collection procedures.

The Atlantic link alludes to this possibility, though Ms. McCardle (like me) can't say for sure if that's what's going to happen. But this may not be a mistake in the legislation.

Posted by: Dan | Mar 30, 2010 8:18:39 AM

So the government can force us to pay money when we don't know where it goes (i.e. tax us), but they can't force us to pay money when we know where it will go (to buy a health insurance premium).

Posted by: anon | Mar 30, 2010 6:06:22 AM