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IRS has limited power to enforce Obamacare fines for lack of insurance

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The requirement that individuals purchase health insurance or face a fine is the foundation of funding Obamacare. (Source: MGN) The requirement that individuals purchase health insurance or face a fine is the foundation of funding Obamacare. (Source: MGN)
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    Several major provisions of the Affordable Care Act, commonly known as Obamacare, are taking effect in the coming months. Here are some details on what's happening, how it will work, and what it means for you.More >>
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(RNN) - One of Obamacare's most controversial elements is the requirement that most Americans carry health insurance or face a fine. The Treasury Department in August released a 75-page guideline detailing what's expected and who is included.

The IRS will enforce the mandate for "minimal essential coverage" for individuals and businesses.

The fine for people not carrying insurance starts small in 2014, at $95 per person or 1 percent of income, whichever is higher. In 2015, the fine is the higher of $325 per person or 2.0 percent of taxable income until it reaches $695 per person or 2.5 percent of income by 2016. Spouses and dependent children up to the age of 26 must be covered, as well, or the taxpayer is subject to fine.

Initially, paying the fine will be far cheaper than the cost of mandatory insurance, and thus would not act as a strong financial incentive to purchase healthcare. And even though the fine increases sharply after the first year, current trends in rising healthcare costs indicate the fines are unlikely to be as costly as high-end insurance, according to Forbes.

Employers with more than 50 full-time-equivalent employees must offer healthcare to employees and dependents under the age of 26, but are not required to offer coverage for spouses. The employee will have to buy insurance for the spouse under such plans. Employees who do not receive health insurance from their employer will have to buy it for themselves and dependents.

The minimal requirements of essential coverage are low. According to the IRS Code, either the government plan or any other plan legally sold in the state will qualify. Low-cost plans that offer a small range of services will be available to businesses and individuals.

However, the IRS is limited in the ways it can collect the fine. The Affordable Care Act stipulates that taxpayers are not subject to criminal prosecution or penalty for refusing to pay. The IRS cannot place a lien on property, either, as it can when collecting back taxes.

The only way the IRS can collect the mandate fine is by taking it out of withholding or deducting it from tax refunds of those who receive one. The IRS has no way to collect the fine from people who do not participate in withholding – however, making it more likely they will receive a return.

If the cost of insurance is more than 8 percent of your income, you may be exempt from the mandate if you buy your own insurance. This is meant to protect low-income older people, who pay more for insurance than young ones. Many older Americans may be exempt from the mandate altogether.

People below the poverty level and who do not file an IRS return are exempt from the mandate. Recognized religious organizations and American Indians are also exempt.

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