Q. I’ve heard that the government can’t really enforce the penalty for not having health insurance. Is this true?
A: Although the Supreme Court officially deemed the penalty a tax in their 2012 ruling that upheld most parts of the ACA, enforcement is not the same as it is for other taxes.
The individual shared responsibility provision requires most Americans to have health insurance, although there are numerous exemptions. For those who don’t qualify for an exemption, the penalty for non-compliance will be assessed on annual income tax returns, starting with the 2014 returns that were filed in early 2015.
For the first time, 2014 tax returns asked whether you had health insurance in force throughout the year. In many cases, employers and the exchanges are reporting this data directly to the IRS, but each tax filer will have to answer the question each year.
For most unpaid taxes, there are a variety of ways that the IRS can recoup their money. But the text of the ACA is very clear in stating that taxpayers who don’t pay their ACA penalty are not subject to levies, liens, or criminal prosecution.
The only way that the IRS can collect the ACA penalty is if you pay it voluntarily, or if you’re owed a refund. In the latter case, the IRS deducts the penalty from your refund. Seventy-five percent of tax filers receive a refund, and the average refund was about $2,700 in 2013.
In July 2015, the IRS reported that 7.5 million tax filers had reported a total of $1.5 billion in ACA penalty payments for 2014. The average payment was about $200 (even in 2014, it’s not just $95), and 85 percent of the filers who owed a penalty still received a refund, since average refunds are far larger than the average 2014 penalties. But the penalty increased significantly for 2015, and will jump sharply again in 2016; average penalty amounts will be considerably higher when taxpayers file their 2015 and 2016 returns. In most cases, however, they’ll still be lower than the average refund amount, making it relatively easy for the IRS to collect the penalty payments.
For the foreseeable future, the IRS should be able to collect a good chunk of the penalties simply by withholding the penalty from the filers’ refund checks. And for filers who are not owed a refund in a given year, the penalty can be deducted from a future year’s refund instead.