Since the U.S. Supreme Court’s decision approving the corner-stone of the Obama care law (the “individual mandates”) many have claimed the new “penalty” represents the “largest tax in America’s history.”
According to several IRS tax lawyers, however, there appear to be nine (9) different revenue increases which are, in fact, larger within the Obama care law itself. IRS tax attorneys point to the payroll and investment tax increases on high-income Americans which is projected to bring in three hundred and seventeen billion dollars ($317,000,000,000.00) over the next ten (10) years, and new taxes on health insurance providers and high-cost “a.k.a. Cadillac” healthcare plans which are expected to each bring in more than one hundred billion ($100,000,000,000.00). Many IRS tax lawyers have identified a total of twenty one new (21) tax hikes in the law, which interestingly also includes an excise tax on medical devices and a ten percent (10%) levy on tanning services.
Significantly, even the U.S. Department of Treasury’s Inspector General, who’s tasked with oversight of the IRS, says the Affordable Care Act “includes the largest set of tax law changes in more than twenty (20) years.” Most IRS tax attorneys will tell you there is little doubt the IRS will need more people to help enforce the new taxes. In fact, several IRS tax lawyers have expressed concerns the IRS will have to hire literally thousands of new employees at a time when its budget is being cut and it’s receiving poor marks for service by the agency’s Taxpayer Advocate.
IRS tax attorneys studying the new healthcare law note the penalty for not having healthcare insurance (the individual mandate) will be either a flat dollar amount or a percentage of household income. After starting at less than one hundred dollars ($100.00) in 2014, IRS tax lawyers say the law’s minimum flat amount rises to six hundred and ninety five dollars ($695.00) in 2016, and is then indexed to inflation in subsequent years. As a percentage of household income, the tax will be capped at 2.5% in 2016 and thereafter.
A 2010 review of the new law by the Congressional Budget Office and the Joint Committee on Taxation concluded that four (4) million people will be subject to the individual mandate’s penalties in 2016. Projections suggest that by that year there will be a total of twenty one (21) million nonelderly uninsured Americans.
Several IRS tax attorneys believe the majority of those uninsured Americans will be exempted from having to pay the “tax” because of their immigration status, religious beliefs, income level, or membership in an American Indian tribe. IRS tax lawyers say the IRS will also be restricted in the way it may enforce the payment of the new “tax”. For example, the Agency won’t be allowed to prosecute people as it can when individuals don’t pay other required taxes. Further, there are no civil or criminal penalties for refusing to pay the tax, ant the IRS will not be able to issue an IRS levy or wage garnishment to collect the tax. Also, no interest accumulates for unpaid “penalties.”
Howard Gleckman of the Urban Institute’s Tax Policy Center claims “the tax [a.k.a. the individual mandate penalty] is a mouse.” Gleckman asserts “it will affect relatively few people. And it will be almost impossible for the IRS to make anybody pay it.”Some IRS tax lawyers have opined the IRS will be forced to resort to scary letters and threats of withholding tax refunds to secure some modicum of compliance.
While the IRS has not yet issued procedures for how taxpayers will prove their in compliance, IRS Commissioner Shulman has suggested a process similar to the one currently used by taxpayers to report interest or investment income. Assuming the IRS adopts such a process, many IRS tax lawyers believe a health insurance company would be required to send the taxpayer and the IRS forms each year verifying the taxpayer is covered. Taxpayers would then be required to include the forms with their tax returns and the IRS would check them against the forms it receives directly from the healthcare insurer.
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