CRS Report Details Individual Mandate and Potential Penalties

The non-partisan Congressional Research Service on August 22 released a report detailing how the individual mandate included in the federal health care reform law will work if and when it takes effect in 2014. Because Congress decided that the IRS should have a role in enforcing the law, tax practitioners may well have a role as well, like it or not.

The Patient Protection and Affordable Care Act requires individuals to have insurance that meets minimum standards or else face financial penalties, with a few exceptions. CRS takes the view that the individual mandate is considered a very important part of the law because it ensures healthy people obtain coverage, which in turn helps spread risk and keep costs down. The constitutionality of the individual mandate has been challenged in lawsuits, and the courts have issued opposing rulings. The question ultimately is expected to reach the Supreme Court.

According to the report, PPACA does grant exemptions from the individual mandate penalty if, for example, coverage is deemed unaffordable. In addition, the law allows exemptions from the individual mandate for those with religious objections, in a health care sharing ministry, not legally present in the United States, or incarcerated, according to the report.

If a person subject to the individual mandate fails to obtain coverage and fails to pay the penalty, he or she will receive a notice from the IRS. If the penalty remains unpaid, the IRS can collect the money by reducing a future tax return, but cannot file notice of lien or file a levy on any property. Those who fail to pay the penalty also will not be subject to criminal prosecution or penalty, according to the report.

The law also sets forth reporting requirements to ensure IRS knows who has obtained proper coverage, as well as to make sure individuals know whether the coverage they obtain meets the requirements for adequate coverage, according to the report. The IRS has not yet detailed the reporting requirements or any proposed reporting forms. CRS also included examples of how much an individual or family would pay if they did not obtain adequate coverage.