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The IRS and the ACA: tax agency to play key role in health insurance reform

For better or worse, the IRS will be deeply involved in implementing the Affordable Care Act. Indeed, the Treasury Inspector General for Tax Administration (TIGTA) has said that the tax provisions of the ACA amount to the biggest package of tax law changes in at least 20 years.

The ACA, otherwise known as Obamacare, takes full effect next year. In South Florida and across the nation, individuals and small businesses are trying to figure out how to respond to its many specific provisions.

Much has been made of the so-called "individual mandate" for individuals to buy insurance if they are not already covered by an employer or under a family member's policy. It has now been over a year since the U.S. Supreme Court upheld that part of the ACA.

It will be up to the IRS to determine who must pay tax penalties for failure to comply with requirement to have health insurance coverage. The penalties would not per large initially. But by 2016, they are due to rise considerably. For a single adult, the penalty would generally be $695 or 2 percent of income, whichever is greater.

But the ACA is a very complex law and the tax penalties also depend on the national average for premiums on the health insurance exchanges that are being set up in each state. These exchanges are essentially the shopping portals through which people without insurance are supposed to buy it.

The complexity grows when one considers the impact of the ACA on businesses. Employment taxes are already affected, as many employers have already started withholding higher Medicare taxes from high earners to help pay for Obamacare.

The IRS is of course the agency collecting these taxes. Implementation of the ACA will also require the IRS to collect information from businesses on which employees have insurance.

Businesses with 50 or more full-time employees must tell the IRS whether they offer those employees at least the "minimum essential coverage" required by the ACA. Businesses of this size face tax penalties if they not meet this requirement.

Small businesses with fewer than 50 full-time employees do not face these penalties. But there are plenty of potential tax issues for those businesses as well, such as the potential availability of tax credit for offering health insurance to employees.

Source: CNN Money, "IRS role in Obamacare," Jeanne Sahadi, May 28, 2013

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