Now That the Affordable Care Act Is Officially a Tax, It's Up to the IRS to Collect the Debt

In June of 2012, in a highly anticipated decision, the Supreme Court ruled that the key provision of President Obama's Affordable Care Act—the one requiring all American to purchase health insurance—is constitutional. Somewhat surprisingly, though, Chief Justice John Roberts was careful to designate the health-insurance mandate as a tax, rather than a matter of interstate commerce—which means that, starting in 2014, key parts of the national health insurance law will be under the supervision of the IRS.

In Enforcing the Affordable Care Act, the IRS Won't Be Able to Resort to the Usual Penalties

One of the key ways President Obama was able to get his health-care bill passed was by ensuring that the authorities wouldn't impose draconian penalties on those who refused to purchase health insurance. What this means, in effect, is that the IRS will not be able to resort to the usual weapons in its arsenal—seizures, liens, wage garnishment, etc.—to collect unpaid ACA premiums.

If the IRS can't use its “big sticks” to collect back ACA payments, then what can it do when confronted with recalcitrant taxpayers? Right now, there appear to be two options:

  • The IRS can deduct back ACA premiums from any refunds due to the offending taxpayer. So if you were counting on that $3,000 refund in the late spring, and you've been delinquent on your ACA obligations, you may be in for a surprise.
  • The IRS can subtly pressure citizens into paying their ACA premiums by applying a magnifying glass to the non-ACA portions of their tax returns—though whether Congress will allow this is uncertain right now.

Most likely, the IRS will have to create a separate division devoted exclusively to the ACA and its ramifications. At the least, this would entail hiring thousands of new employees and setting up a complicated, step-by-step notification and penalty system for recalcitrant taxpayers. Thanks to the Law of Unintended Consequences, no one knows exactly how this situation will play out until the health-care mandate actually goes into effect!

Whatever the Repercussions of the ACA, You'll Need Good Tax Advice

If you are an employer concerned about your tax obligations under the Affordable Care Act—or if you're just an Oklahoma resident who's worried about your soon-to-increase tax bill—call the experienced Oklahoma City tax attorneys at Travis W. Watkins, PC today for a consultation. We make it our business to stay on top of the ACA, and we'll keep you apprised of the latest developments.