IRS Will Accept Individual Tax Returns that Don’t Indicate Health Coverage

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On Feb. 15, 2017, the IRS updated its Individual Shared Responsibility Provision web page to include a statement that the IRS will not reject individual federal income tax returns (Form 1040) that have a blank entry on line 61 (Health Care: Individual Responsibility).

However, the IRS clarified that the blank line 61 does not relieve the individual from payment of a penalty, but it does mean the IRS will process the return (whereas previously they would have rejected those returns). So, the change in position is not necessarily penalty relief, but relief from a return rejection. The IRS also stated that it is currently reviewing Pres. Trump’s Jan. 20, 2017, executive order to determine its implications and that taxpayers should continue to file their tax returns as they normally would.

As a quick background, the individual shared responsibility provision (i.e., the individual mandate) requires individuals to do at least one of the following:

  • Have qualifying health coverage (called “minimum essential coverage”);
  • Qualify for a health coverage exemption; or
  • Make a shared responsibility payment for the months that the individual did not have coverage or an exemption.

Some taxpayers will have qualifying health care coverage for all 12 months in the year, and will be able to check the “Full-year coverage” box on line 61 of their return. This year, the IRS had put in place system changes that would have rejected tax returns during processing in instances where the taxpayer didn’t provide information related to health coverage (i.e., left the box unchecked). However, the Jan. 20, 2017, executive order (mentioned above) directed federal agencies to exercise authority and discretion available to them to reduce potential burden.‎ Consistent with that, the IRS has decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn’t indicate their coverage status on line 61.

As a reminder, the legislative provisions of the PPACA are still in force until changed by Congress, and taxpayers remain required to follow the law and pay what they may owe‎. So, the IRS may still enforce the individual mandate, but Forms 1040 will not be rejected at the time of filing, allowing the returns to be processed. Thus, the IRS maintains the option to follow up with those who elect not to indicate their coverage status. It is not clear at this time what circumstances might trigger a follow up. When the IRS has questions about a tax return, taxpayers may receive follow-up questions and correspondence at a future date, after the filing process is completed‎, and taxpayers should work with individual tax advisors with respect to answering those questions and correspondence.

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