Filing Your 2016 Tax Return? The ACA?s Individual Mandate and Penalties Still Apply

ERISA and Employee Benefits Update

Filing Your 2016 Tax Return? The ACA?s Individual Mandate and Penalties Still Apply

When preparing your 2016 tax return, you will come across line 61 on the 1040 U.S. Individual Income Tax Return (or line 11 on Form 1040EZ), where you indicate whether you complied with the Affordable Care Act’s (“ACA”) “Individual Mandate.” The mandate requires taxpayers to maintain health care coverage for each month of the year that meets ACA standards, or calculate and pay the required tax penalty. On February 15, 2017, however, the IRS announced that it would not reject 2016 tax returns that omit this information. The IRS’s recent announcement came in response to President Trump’s Executive Order that the federal government defer enforcing ACA provisions to “minimize the unwarranted economic and regulatory burdens” the ACA may have on individuals and families.

The IRS announcement does not excuse tax payers from complying with the Individual Mandate for the 2016 tax year, however, notwithstanding incorrect reports by some media outlets that compliance with the ACA’s Individual Mandate is now optional. Despite a new White House Administration and a Republican majority Congress all poised to repeal and replace the ACA, the Individual Mandate and corresponding “Individual Shared Responsibility Payment” tax penalty remain in place for 2016 federal income tax filings. In fact, failing to report this information will likely result in additional IRS questions and delays in obtaining any tax refund because the IRS cannot confirm a taxpayer’s bottom-line tax obligation or refund without knowing whether the penalty applies. Remember also that the IRS has the authority to withhold any tax penalty, including the Individual Shared Responsibility Payment related to the Individual Mandate, from any tax refund to which you may be entitled.

In truth, the IRS did not reject 2015 tax year filings for failing to report ACA compliance, but indicated at that time that any 2016 tax returns lacking the required information for the Individual Mandate would be automatically rejected. Now, as it announced in February of this year, the IRS will not reject 2016 returns outright for omitting this information, but taxpayers are still subject to the Individual Mandate and its penalties because Congress has not repealed those statutes. On March 6, 2017, Congress revealed more information regarding its proposed replacement for the ACA. Although the Individual Mandate and its penalties for noncompliance may be on their way out, nothing has really changed—for now. 

In summary, if you complied with the Individual Mandate in 2016, there is no reason to omit this information on your 2016 tax return, and if you did not comply, omitting this information will not excuse you from the penalty unless you qualified for an exemption (those seeking an exemption must file Form 8965). 

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