IRS Says Health Care Coverage Fines Not Punitive, But Admits Govt Can Keep Refunds If Fines Not Paid

By Penny Starr | April 7, 2010 | 4:31 PM EDT

IRS income tax forms.(AP file photo)

( – IRS Commissioner Doug Shulman said on Monday that the health care bill signed into law last month by President Barack Obama is not “punitive,” but that the agency could withhold tax refunds if it determines a taxpayer does not have mandatory health care coverage and should pay a fine, as stipulated in the law.
The new health care law mandates that every American have health insurance, either on their own or through their employer. If a person refuses to buy health insurance, he can be penalized financially by the federal government.
“I think there’s a couple of important points that I would make, though, about our role in health reform,” Shulman said during a question-and-answer session following a speech at the National Press Club on Monday. “One is that these are not the kinds of things – check the box whether you’re here or not -- that we send agents out. These are things where you get a letter from us.”
“Second is, Congress was very careful to make sure there was nothing too punitive in this bill,” Shulman said. “And so, we do not have authority – first of all, there’s no criminal sanctions for not paying this and there’s no ability to levy bank accounts, do seizures or some of the other tools.”
“So our role is going to be straight-forward,” Shulman said.

In this April 5, 2010 file photo, Internal Revenue Service Commissioner Douglas Shulman gestures while speaking at the National Press Club in Washington. (AP Photo/Manuel Balce Ceneta, File)

When asked by someone in the audience how the Internal Revenue Service would make sure people are complying with the health insurance mandate without sanctions, Shulman said his agency had the means to collect fines, which could range from several hundred for an individual to as much as 2.5 percent of household income, according to a GOP analysis based on a Mar. 18 Congressional Budget Office report on the cost of the health care law.
“People will get letters from us,” Shulman said. “We can actually do collections if need be; people can get offsets of their tax returns in future years.
“So there are a variety of ways for us to focus on things like fraud, things like abuse and we’re going to run a balanced program,” Shulman said.
Shulman said Americans have a high compliance rate when it comes to paying taxes.
“The vast majority of Americans have a healthy respect for the law and want to be compliant with their tax obligations and whatever else the law holds,” Shulman said.
As reported, under the new law, every individual and most businesses are required to report to the IRS, on their tax returns, whether they have purchased or provided the required level of coverage and disclose to the IRS which months, if any, in which they failed to do so. 

Using this information, the IRS would then determine whether an employer or individual falls under the individual health insurance mandate, which contains exceptions for religious conscience, hardship, incarcerated persons, and members of Indian tribes.
If either an individual or a business has failed to comply with this mandate for any month out of the year, they are required to pay a separate tax to the IRS. For individuals this is a maximum of $750 per person (up to $2,250 per household) and $750 per uncovered employee for businesses. 
Because these penalties would each apply on a monthly basis, individuals and employers would have to pay 1/12th of the maximum penalties for each month they failed to comply with the mandates.