The following is a guest post by Carter Smith from PrivateQuote.com.
To paraphrase Shakespeare, a tax by any other name would still smell as vile. But the Obamacare tax, otherwise known as the “individual mandate,” may be an exception. While I am not suggesting that you avoid the tax, it is clear that many people intend to do just that. A recent Gallup poll found that 34% of Americans intend to thumb their noses come tax time instead of holding them.
This article will provide facts (not rumors) about what the mandate is, how much it can cost you, how the IRS may or may not enforce it, and how to protect yourself should you choose not to comply.
How the Mandate Works and What It Could Cost You
Make no mistake, the individual mandate is a tax disguised as a penalty. The Supreme Court said as much when it ruled the mandate constitutional. It is designed to force reluctant taxpayers to purchase health insurance through the problem-plagued exchanges if they are not covered by their employers.
Starting in tax year 2014, individuals and families who fail to purchase health insurance will face a tax of 1% of adjusted income. Basically, your penalty is calculated by taking your income minus $10,000 for an individual ($20,000 per family) and multiplying what remains by 1%. That tax will increase to 2.5% by 2016.
The President’s recent proposal to allow insurance companies to continue providing “substandard plans” into 2014 would do nothing to delay the mandate or its associated penalties. You still must be insured under the mandate, although it appears the law has restricted the ability of the IRS to enforce penalties against those who don’t comply.
Here’s How the IRS Can and Cannot Enforce the Mandate
Historically, the IRS has been granted immense power to enforce federal tax policy and pry open your wallet. The tools at their disposal include wage garnishments, liens, asset seizures and even imprisonment. Scary stuff. In the case of Obamacare, some have speculated that the taxman will simply take the money out of your bank account if you don’t comply with the individual mandate. Fortunately, that looks unlikely.
Section 1501 of the Affordable Care Act (a.k.a., “Obamacare”) specifically states,
“in the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.”
A report by the congressional Joint Committee on Taxation which drafts and analyzes legislation notes, “the use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty.” In case of non-compliance, interest does not even accrue on the unpaid amount. Those who drafted the law intended to preclude the IRS from using the more aggressive tactics that are usually at its disposal.
So how can the IRS collect the tax associated with the individual mandate? By keeping all or a portion of your income tax refund up to the amount of the penalty, that’s how.
Don’t Let the Feds Use Your Money for Free
Unfortunately, more than 80% of taxpayers receive a refund when they file their Federal tax return. The average taxpayer is having too many tax dollars deducted from their paychecks throughout the year and giving it to the federal government in the form of an interest free loan. In this case, it also means the IRS will be able to confiscate the Obamacare tax from you by keeping all or a part of your income tax refund. But if they don’t owe you a refund, they can’t collect the tax using their more familiar strong-arm tactics.
Regardless of your intention to pay or not pay the Obamacare tax, it doesn’t make sense to give the Feds an interest free loan year after year. If you are an employee, it is fairly simple to get an accurate estimate of your tax liability and adjust your W-4 withholding exemptions to avoid either a big refund or payment come tax time. And if you plan to skirt the Obamacare tax, it’s essential that you do so.
To summarize, if you’re really intent on avoiding the tax imposed by the individual mandate, carefully manage your tax payments throughout the year so you are not due a refund. You should come out smelling like a rose.
Editor’s Questions: How has Obamacare changed what you are doing for health insurance? What are your thoughts on those who choose to ignore the mandate? Is that an ethical issue?
Author Bio: Carter Smith is an independent business development consultant, with a special emphasis on helping Christian companies and organizations grow to their full potential. Carter is currently helping PrivateQuote.com revolutionize the way people compare and buy term life insurance from the best life insurance companies. Carter can be reached at this email address.
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