2018 Tax Filing Season May Yield First Taxpayer Casualties For Individual Affordable Care Act Reporting Noncompliance

In an online statement, the IRS has reported that the failure to address the health coverage requirements of the Affordable Care Act (ACA) can result in taxpayer’s tax return being rejected or suspended from review.  For the first time since the ACA was enacted, the IRS will begin to enforce the ACA taxpayer reporting requirements and, as such, taxpayers must report whether they had health coverage, had an exemption or will make a shared responsibility payment in their 2017 tax returns.

The ACA’s individual mandate provision requires individuals to obtain qualifying minimum essential coverage. Individuals may be exempted from this mandate if (1) their household income is below the return filing threshold or (2) they pay a penalty. In order to enforce the individual mandate, IRS requires taxpayers to report health coverage in their returns.

Previously, for the 2016 tax returns, IRS processed tax returns that were silent about individual mandate compliance.  However, the IRS has explicitly indicated that it will reject electronically filed 2017 tax returns that are silent on the individual mandate compliance. As for returns filed on paper, IRS will suspend processing of the returns pending the receipt of additional information. This may delay any refunds.

Deadlines:

Under IRS Notice 2018-06, the IRS provided an automatic 30-day extension—until March 2, 2018—for self-insuring employers, applicable large employers, insurers, and other coverage providers to furnish Forms 1095-B or 1095-C to individuals.[1]

However, the IRS has not extended the due date for filing 2017 information returns with the IRS. Thus, employers must file the information returns by February 28, 2018 (for paper filers) or April 2, 2018 (for electronic filers).

What should taxpayers do?

To prevent delay in the processing of tax returns, taxpayers should ensure that their Form 1040 tax returns address the health coverage requirements of the ACA.

What should employers do?

To prevent issues with taxpayers’ reporting of their compliance with the health coverage requirements of the ACA, employers should ensure that they provide their employees with the appropriate health reporting forms by March 2, 2018.