The Internal Revenue Service (IRS) provided some important information this week regarding the mandate contained in the new federal healthcare law requiring individuals to purchase insurance, or risk paying a fine.

Under regulations adopted by the IRS, the shared responsibility payment for not maintaining minimum essential coverage under the Affordable Care Act, also known as the individual mandate, will go into effect in 2014. (The employer mandate to provide coverage to workers has been delayed until January 2015.)

Americans who do not purchase health insurance for themselves next year will face a $95 penalty, or 1% of their income, whichever is larger. This penalty will go up in 2015, to $325 or 2% of income, and again in 2016, to $695 or 2.5% of income.

Also, anyone claiming dependents on their tax return will be responsible for paying these fines if the dependents don’t have health insurance.

These penalties are avoidable, however, because included in the Obamacare law is a provision stating that the IRS has no enforcement power to collect the fines.

According to Avik Roy at Forbes, section 1501(g)(2) of the Affordable Care Act specifies that the IRS cannot subject taxpayers to “any criminal prosecution or penalty” for refusing to pay the mandate fine. The IRS also can’t impose a lien on someone’s property to force payment of the fines.

“Basically, the only thing the IRS can do to make you pay the mandate fine is to take it out of your withholding, or withhold it from your tax refund, if you’re due one,” Roy wrote. “So if you don’t participate in the withholding process, the IRS has no way to collect the mandate fine.”

Roy also noted that many older Americans will be exempted from the individual mandate because the law says that if the cost of a person’s coverage is more than 8% of their household income, the requirement doesn’t apply to them. This situation is likely to apply more often to seniors due to the fact that they tend to pay higher health insurance premiums than younger people.

Other categories of Americans who will be exempt are members of federally-recognized Indian tribes, members of religious sects that are opposed to the acceptance of benefits, and people who do not make enough money to file an income tax return or who live below the poverty line. 

-Noel Brinkerhoff

To Learn More:

IRS Finalizes Affordable Care Act's Individual Mandate Regulations (by Michael Cohn, Accounting Today)

White House Publishes Final Regulations For Obamacare's Individual Mandate -- Seven Things You Need To Know (by Avik Roy, Forbes)

Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage (Internal Revenue Service)

Is Chief Justice Roberts’ View of Health Insurance Penalties as Taxes a Disguised Attack on Congressional Power? (by David Wallechinsky and Matt Bewig, AllGov)