For the coming 2016 tax season, the IRS planned for the first time to make it mandatory for taxpayers to check the box or face not having their tax returns processed and their tax returns withheld. "Unless the Trump administration maintains the mandate is unconstitutional, the Constitution requires them to enforce it".
The move is a result of an executive order signed by President Donald Trump just hours after he took the oath of office and is seen as a blow to Obamacare's individual mandate that was touted by former President Barack Obama as part of the three-legged stool vital to maintain the Affordable Care Act.
While the mandate requires individuals to have health insurance, the IRS's new policy makes enforcing the tax penalty more hard. Now the IRS says it will keep processing such returns, as it has in the past.
The administration on Wednesday also backed off implementing tougher oversight of the individual mandate, the requirement for all Americans to have health insurance or pay a fine, that was due to go into effect for 2016 taxes. But following an executive order directing agencies to relax rules around the health law, that plan has been rolled back.
The IRS ruling essentially tips over the three-legged stool on which the ACA was built: community rating (no disqualifications for pre-existing conditions and only limited differentials in premium based on age and whether the person is a smoker); universal coverage (everyone must be covered either by an employer or an individual plan or pay a penalty); and subsidies for low-income Americans.
Then along came Trump's order, which told executive-branch agencies to "exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [ACA] that would impose ... a cost, fee, tax, penalty, or regulatory burden on individuals". The IRS was scheduled to begin rejecting forms where the filer failed to fill out line 61 or file an exemption - called a "silent return" - this year, but filling out the line will now continue to be effectively optional.
Taxpayers have good reason to avoid telling the IRS about their insurance status. The mandate remains the law, and people are still supposed to pay a penalty for lacking coverage.
The IRS's move, quietly made February 6, is in response to an executive order by President Donald Trump that authorized federal agencies to lower the financial burden of complying with Obamacare rules.
"I don't necessarily think these changes are enough to alter insurers' decision-making about staying in the markets", said Caroline Pearson of the consulting firm Avalere Health.
This year, the penalty is the greater of $695 per adult, or 2.5 percent of taxable household income.
Michael Cannon, the health policy director at the libertarian Cato Institute, said in an interview that the Trump administration under the Constitution is required to enforce the mandate unless Congress decides to change the law. However, Ellis added, "The mandate can only be weakened by Congress. They will count on voluntary disclosure of non-coverage rather than asking themselves".