Skip to primary navigation Skip to main content
Find the RPC Budget Amendment Tracker here

IRS Auditing Americans’ Health Care

December 11, 2012

Regardless of what happens in the fiscal cliff negotiations, President Obama’s health care law guarantees middle class families will pay higher taxes. Hardworking Americans deserve to know that the President’s health care law – and the Administration’s regulatory onslaught – dramatically expands the IRS’ power to enforce these tax hikes.

Over the past several weeks, the Obama Administration has released a wave of health care regulations. This regulatory push includes rules outlining how the Internal Revenue Service (IRS) plans to implement new taxes to pay for Obamacare.

The White House and Senate Democrats are not eager to explain how -- or defend why -- their unpopular law gives the IRS unprecedented new powers to probe even further into taxpayers’ lives. Not only will the IRS continue to police tax collection, Obamacare empowers the agency to investigate and monitor details of Americans’ health insurance.

The New Face of American Health Care

President Obama’s Tax on the Uninsured

The health care law contains a mandate requiring all Americans purchase a government approved insurance plan. It also defines the level of health insurance coverage every American must buy. If a person does not buy federally approved health insurance -- for even one month -- then the IRS will assess a tax.

Uninsured Americans pay a tax of either a flat amount or 2.5 percent of household income, whichever is greater. Starting in 2014, the flat tax is $95 per adult plus $47.50 per dependent under age 18. The tax grows until 2016, when it reaches $695 per adult plus $347.50 per dependent. The tax is then adjusted for inflation in later years.

Increasing taxes on uninsured

The total tax is capped at the national bronze level average premium offered in an exchange. The Congressional Budget Office (CBO) estimates that premium in 2016 will be between $4,000 and $5,000 for an individual and $12,000 to $12,500 for a family. The IRS will use people’s tax returns to confirm that every American buys government mandated health coverage.

In 2016, when fully phased in

The tax on the uninsured hits low income families hardest. A single filer earning $25,000 will pay a $695 tax. A family of four earning $25,000 will pay $2,085. And it is a regressive tax. While a family of four earning $100,000 would pay about two percent of household income to offset the tax, the same size family earning $25,000 would spend 8.34 percent of its income.

Another Broken Promise: Taxes Hit Middle Class

President Obama promised: “Under my plan, no family making less than $250,000 a year will see any form of tax increase.” But among the health care law’s $1 trillion in tax hikes, the President and congressional Democrats enacted 12 tax increases that target middle class families. 

By 2016, 4.7 million low and middle income households face paying a tax for failing to buy government approved health insurance.

Individual mandate penalties in 2016

Source: CBO and JCT

 

 

IRS’s New Mission: Federal Health Care Cop

The new health care taxes will impose tremendous administrative burdens on the IRS and generate compliance nightmares. 

Since the IRS assesses a tax for each month without health insurance, the agency must collect a tremendous amount of data from insurance companies in order to track and monitor compliance. At a minimum, the IRS will have to know:

  • The insurance policy costs and benefit structure;
  • The people covered under the insurance plan;
  • The insurance plan coverage timeframe;
  • The household income reported to the insurance company;
  • If the person’s employer offered health insurance coverage.

If a person is offered insurance by his or her employer, then the IRS will also want to know:

  • How many people the business employs;
  • The employer-sponsored insurance plan’s costs and benefit structure;
  • The people covered under the employer-sponsored plan;
  • The insurance policy’s coverage period.

To obtain this information, the IRS will have to develop new layers of red tape for businesses and families. It is unclear how taxpayers will resolve discrepancies between their tax returns and the data insurance companies report to the IRS, but they certainly will need to keep careful records.

Independent Audits Say IRS not Ready to Implement the Law

The Treasury Inspector General for Tax Administration (TIGTA) found that the IRS is not equipped to implement a law containing “the largest set of tax law changes in more than 20 years.” It said the IRS hadn’t conducted a thorough review of each provision of the law it will be required to implement. Consequently, TIGTA said it was “unable to determine whether the IRS has an adequate workforce in place or planned.” A separate analysis estimates the IRS could need as many as 16,500 more agents, examiners, and support employees.

A Government Accountability Office (GAO) audit found that the IRS, by failing to properly identify its expenses, “risks being unaware of the true costs of its [health care law] activities.” GAO uncovered one instance of $3.2 million the IRS did not charge to its health care law account. In another case, reports surfaced last spring that the Obama Administration transferred $500 million to the IRS in order to help the agency hide its true implementation costs.

In 2010, CBO warned that the IRS could need an extra $10 billion to enforce the health care law. Rather than include these funds in the health care law, the Obama Administration tried to conceal the law’s ballooning costs by absorbing the funds into another agency’s budget.

When Americans think about health care, they do not automatically think of the IRS. But as the Administration issues more regulations, the American people will find that the IRS is the chief federal enforcer for key parts of President Obama’s health care law.