In 2 and a ½ years, most taxpayers will have to start providing proof on their tax returns that they have health insurance, renewing questions about whether the agency is capable of policing the health care decisions of millions of people in the United States while also collecting the taxes needed to run the federal government.
Under the law, the IRS will provide tax breaks to help pay for insurance and impose penalties on those who don’t buy coverage as well as on some businesses that don’t offer insurance to their employees.
The changes will require new regulations, forms and publications, new computer programs and an outreach program to explain it all to taxpayers and tax professionals. Businesses that don’t claim an exemption will have to prove they offer health insurance to employees.
The health care law “includes the largest set of tax law changes in more than 20 years,” according to the Treasury inspector general who oversees the IRS. The agency will have to hire thousands of new workers to manage it, requiring significant budget increases.
“Knowing the complexity of the health law, there’s no question that the IRS is going to struggle with this,” said Rep. Charles Boustany Jr., R-La., chairman of the House Ways and Means oversight subcommittee. “The IRS wants more resources. Well, we need to start digging down into what are they doing with the resources and personnel.”
Treasury spokeswoman Sabrina Siddiqui said, “The overwhelming majority of funds used by the agency to implement the Affordable Care Act go to administer the premium tax credits, which will be a tax cut averaging about $4,000 for more than 20 million middle-class people and families.”
The Supreme Court, in its 5-4 ruling, upheld the mandate that most Americans get health insurance. Those who don’t get qualified health insurance will be required to pay a penalty, or tax, starting for the 2014 tax year, unless they are exempt because of low income, religious beliefs, or are members of Native American tribes.
The penalty will be fully phased in by 2016, when it will be $695 for each uninsured adult or 2.5 percent of family income, whichever is greater, up to $12,500. The nonpartisan Congressional Budget Office estimates that 4 million people will pay the penalty that year.
The law limits the ability of the IRS to collect the penalties. There are no civil or criminal penalties for refusing to pay it and the IRS cannot seize bank accounts or dock wages nor does interest accumulate for unpaid penalties.
The law does allow the IRS to withhold tax refunds to collect the penalty.
The IRS says it is well on its way to gearing up for the new law but has offered little information about its long-term budget and staffing needs, generating concern from government watchdogs.
The IRS is expected to spend $881 million on the law from 2010 through 2013, hiring more than 2,700 new workers and upgrading its computer systems, but the agency has not made public information about its spending plans in the following years, when the bulk of the health care law takes effect.
The lack of information makes it impossible to determine whether the IRS will have adequate workers to enforce the health care law, the Treasury inspector general for tax administration said in a report three weeks ago. The report, however, concluded that “appropriate plans had been developed to implement tax-related provisions” of the law.
In 2010, House Ways and Means Committee Republicans issued a report saying the IRS may need as many as 16,500 additional auditors, agents and other employees “to investigate and collect billions in new taxes from Americans.”
That assessment has been widely cited by opponents of the law. The IRS disputes the jobs number but hasn’t offered another one.
“That is a made-up number with no basis in fact,” IRS spokesman Dean Patterson said in an email. “The 2012 budget calls for about 1,200 employees for the IRS to implement the (Affordable Care Act), and the vast majority of those employees are needed to build technology infrastructure to support payments like the new tax credits for individuals and small businesses.”
Republicans on the House committee have accused the IRS of obscuring its cost of putting in place the health care law by absorbing it into in other parts of the agency’s budget. They cite a June report by the Government Accountability Office that said the IRS has not always accurately identified spending related to the new health care law.
“The agency’s repeated lack of transparency to Congress and its failure to provide accountability to the American taxpayers raises fundamental concerns about implementation authorities vested to the IRS,” the top four Republicans on the Ways and Means Committee wrote in a June 27 letter to the IRS commissioner.