The Obamacare Disclosure on Your Tax Return – What Happens If You Don't Make It?

By Beverly Bird ; Updated June 14, 2017
1040 us tax form with pen

May 2017 was a volatile time in Congress, at least where “Trumpcare” was concerned. Republicans fashioned a new healthcare plan to replace former President Barack Obama's health care law. It moved through the U.S House of Representatives on May 5, only to stutter and stall in the Senate weeks later. But even before legislators began wrangling over a new health care law, President Donald Trump struck what many are calling a death blow to the "Obamacare" shared responsibility tax.

The Obamacare Tax

Yes, that tax – the one everyone who doesn’t have health insurance must pay to the IRS. Many say that calling it a tax is a euphemism. It’s a penalty, plain and simple, provided for under the Affordable Care Act since 2014. You’ve probably noticed that spot on your 1040 tax return where you’re asked to ‘fess up and admit whether you complied and carried insurance or if you can claim an exemption. It appears on line 61 of the return.

No exemption and no insurance means you must pay the penalty. The Supreme Court ruled that this was perfectly constitutional in 2012.

Automatically Rejected Tax Returns

It was the intention of the Internal Revenue Service to begin rejecting all 2016 tax returns on which line 61 was left blank. These “silent returns” would be automatically rejected. In other words, the Obamacare disclosure was mandatory. You couldn’t file a return without telling the IRS whether you had insurance.

Line 61 is still there, but now you can leave it blank. Completing that line has become optional and voluntary. Trump issued an executive order early in the year, effectively allowing the IRS to go easy on taxpayers who would have to shoulder up under the financial blow of being penalized for not having insurance. The IRS responded on February 6 with a statement that it would not summarily reject returns that ignore line 61, despite its earlier statement that it would do so. The IRS cited Trump’s executive order, saying that it had “directed federal agencies to exercise authority and discretion available to them to reduce potential burden.”

Obamacare Lives On

This isn’t to say that your tax return with that empty line 61 is guaranteed to slide right through all IRS channels without so much as a hiccup. The IRS was quick to add that you must still pay the penalty if you didn’t carry insurance – the Affordable Care Act is still very much in effect and its provisions are “still in force until changed by Congress” as it said in its announcement. And it’s possible that the IRS may reach out to you to ask if you had insurance – after your return has been accepted.

Implications of the Executive Order

So what does all this mean to your wallet if you don’t have health insurance? It’s a small change with major implications. How is the IRS supposed to impose a tax penalty when it’s not sure whether you actually owe it because you left line 61 blank? Is it really likely that the IRS will gather up all returns without an ACA disclosure, then start sending out correspondence to follow up and check every one of them? It’s always possible, but it may be more likely that some returns might be snagged on a random basis, but certainly not all of them.

How the IRS Can Collect

As a practical matter, the IRS only has one way of collecting the tax penalty anyway. The ACA specifically prohibits it from using tools like liens, levies and criminal prosecution to collect it. Its only recourse is your tax refund.

If you owe the IRS $1,695 and $695 of that represents your Obamacare penalty, you can send a check for $1,000 and there’s really very little the IRS can do about it. But if you’re expecting a $1,000 refund, you’ll receive only $305 – your refund less the penalty amount because the amount is calculated on your return. And the penalty won’t go away, at least not until the law is possibly repealed. If you owe the IRS this year but don’t pay it, and if you’re entitled to a refund next year, the IRS will be waiting to scoop up the penalty from your refund at that time.

The Current Status of the ACA

The health care bill approved by the House on May 5, 2017 replaces Obamacare with what some are referring to as “Trumpcare.” The bill would eliminate the tax penalty entirely, but it allows insurers to charge 30 percent more for policies if taxpayers let their policies lapse then want to reinstate them after 63 days have passed. The ACA’s popular adult child coverage provision remains, and tax credits will take the place of ACA subsidies. The credits increase for older taxpayers and are not available to those with higher incomes – more than $215,000 for individuals and $290,000 for families.

The Senate has balked at the new law all the same, citing concerns that it could cause 23 million Americans to lose health coverage by 2026, according to the Congressional Budget Office. Some Republican senators are said to be in the process of rewriting the bill as of early June 2017. Only 51 affirmative votes are required in the Senate to replace Obamacare with Trumpcare because it’s tax-related.

Meanwhile, a few insurers have reacted negatively to the executive order. Humana has indicated that it will pull out of the Obamacare insurance exchanges after 2017, and Aetna and United Health Group have reined in on the policies they’ve made available on the exchanges as well.

Only time will tell if Obamacare is eventually repealed, but for now, line 61 on your tax return is somewhat moot.

About the Author

Beverly Bird has been writing professionally since 1983. She is the author of several novels including the bestselling "Comes the Rain" and "With Every Breath." Bird also has extensive experience as a paralegal, primarily in the areas of divorce and family law, bankruptcy and estate law. She covers many legal topics in her articles.