IRS Will Require Taxpayers to Supply Health Care Coverage Information to Process 2017 Returns

With “repeal and replace” of the ACA unsuccessful to date, the IRS has announced that the agency will reject 2017 income tax returns that do not address the ACA health care requirements (The Affordable Care Act: What’s Trending, IRS Website).

The IRS had originally planned to reject 2016 returns that did not provide this information.  However, early in 2017 when it appeared that “repeal and replace” was imminent and that the individual shared responsibility payment would be retroactively repealed the IRS decided not to begin requiring that information before processing a return.  The IRS had not required that information in prior years, but the agency had gotten the systems ready to deal with this issue for 2016 returns.

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Executive Order Does Not Relieve Taxpayers of Shared Responsibility Penalties for 2016

On January 20, 2017, newly inaugurated President Donald Trump signed Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal, directing agencies to exercise the authority and discretion permitted to them by law to reduce burdens imposed by the Affordable Care Act.  As well, shortly thereafter the IRS announced that it would accept tax returns where taxpayers did not indicate whether they had qualifying health insurance. 

Many clients took this to mean that the penalties for failure to maintain health insurance that provided minimum essential coverage by individuals and the shared responsibility payments that are imposed on applicable large employers (ALEs) who fail to provide affordable minimum essential coverage to their employees would not apply for 2016.  However, in information letters INFO 2017-10, INFO 2017-0013, and INFO 2017-0017 the IRS noted that the order did not actually change the law, and that the penalties will still apply to those taxpayers unless they meet another exception.

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IRS Will No Longer Reject Returns That Are Silent on Health Insurance Issues

The IRS has announced that it will revert to its prior practice and not reject 2016 individual income tax returns that fail to either check the “full year coverage” box on Form 1040 or provide information related to why the shared responsibility penalty will not apply to them.  The IRS explanation of this can be found on their website in the article titled “Individual Shared Responsibility Provision.” (version updated February 15, 2017)

The IRS had announced last year that, beginning with 2016 individual returns, the agency would reject tax returns during processing where the taxpayer failed to provide the required health care information.  In prior years the IRS had not rejected the returns (referred to as “silent returns” because they are silent with regard to health insurance issues), but continued to process the return and then, if necessary, contact the taxpayers.

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Average Monthly Bronze Premium Amounts for 2016 Published to Be Used in Computing Cap on Shared Responsibility Payments

In Revenue Procedure 2016-43 the IRS provided the 2016 monthly bronze premium amounts for use in computing the premium based limitations on the shared responsibility payments under IRC §5000A.

A shared responsibility payment is generally due for each month that a person fails to have minimum essential coverage for himself or herself or an individual they are eligible to claim as a dependent for tax purposes. 

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