IRS Softens Stance on Affordable Care Act Tax Reporting

February 21, 2017

IRS Softens Stance on Affordable Care Act Tax Reporting

Within hours of being sworn into office on January 20, 2017, President Donald Trump signed his first executive order.  The one-page order took a swipe at the Affordable Care Act (ACA), also known as Obamacare, and directed government agencies to scale back parts of the ACA that may prove burdensome to individuals, families, healthcare providers and others.

The Internal Revenue Service (IRS) spent a couple of weeks reviewing the order and recently announced that they’re taking a more relaxed approach to the health coverage requirement on returns for tax year 2016.

Healthcare Coverage Mandate
The ACA’s individual mandate requires everyone to either have qualifying healthcare coverage or pay a tax penalty, known as a “shared responsibility payment”.  In 2017, the IRS was set to require tax filers to indicate that they were following the mandate by checking a box on line 61 of Form 1040.  Taxpayers could also claim an exemption using Form 8965.  If a taxpayer failed to check the box or file an exemption, the IRS would deem those returns to be silent returns and reject them.

Instead, the IRS has decided that making line 61 mandatory would cause strain to taxpayers.  In 2017, silent returns will be processed rather than rejected, including returns resulting in a refund.  While line 61 is now optional, the IRS maintains the right to follow up with those who elect not to indicate their health coverage status, although what circumstances might trigger that response remain unclear.

Other ACA Implications
President Trump’s executive order is the first step in his effort to fulfill his campaign promise to dismantle the ACA. However, major changes to health policy will require new legislation and will need the backing of Congress. For now, the broad language of the executive order is more of a mission statement from the Trump White House, signaling more changes to come.  It also means that legislative provisions of the ACA are still in force and taxpayers remain required to follow the law.

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