This is a little off topic from our other “analytics” postings, but a recent article (“The Operation of the Individual Tax Mandate” by Jeffrey H.Kahn) presents a fascinating analysis of the complexities of the tax consequences of not obtaining the health insurance coverage required under the health reform law. The author is a law professor and presents two examples: an unmarried mother with a dependent daughter (each of whom had income) and a married couple. The difficulties include determining the applicable family size and income level if some family members were insured and others were not, how dependent exemptions are applied to income calculations, and the responsibility among family members for the penalty if family members file separate returns. The description of the issues are as complicated as any tax discussions that I encountered when preparing for the CPA examination, and would clearly be beyond the capabilities of many who might not be able to maintain health insurance coverage for their families throughout the year. It will significantly increase the complexity of tax calculations, especially for lower-income individuals who may currently have simple (or no) tax returns to file.
Many of the complexities that are noted result from ambiguities in the language of the health reform law, or inconsistencies between the definitions of terms in the health reform law and similar but different definitions in current tax law. In a normal political climate these differences are resolved through a “technical corrections” act that’s passed by Congress after the need for corrections is identified. However, there’s no possibility that any such act could pass in the current Congress, which means that the IRS will need to develop its own guidelines without clear statutory authority. Such guidelines could then be more easily challenged in court.
Although some issues may be clarified by the IRS, the complexities of complying with this law will remain significant. It will be interesting to see the public reaction to these requirements when they become effective