Posted on 03/03/2015 6:27:25 PM PST by T Ruth
[What follows is not legal, accounting, or tax advice, but merely the ruminations of a concerned citizen.]
Until Obamacare is repealed, you should, as many have noted, adjust your withholding and estimated tax payments so that you owe a small amount of tax when you file your return, rather than overpay so that you are in a refund position. Assuming that you have done this, then you will have to make a payment when you file your income tax return. It may be that if you are not careful in how you pay your balance due, you may end up having to pay the Obamacare tax anyway.
If you have a balance due on your 1040 and do not want to pay the Obamacare tax, make your check out only for the amount of income tax, and write on the check “2014 1040 Income Tax.” This should prevent the IRS from applying your payment to the Obamacare tax and then using enforcement to collect unpaid income tax. The IRS cannot use any forced measures to collect the Obamacare tax. You can just owe it forever. (Here I am assuming that you are one of the unfortunate few who do not qualify for any of the thousand-and-one exemptions.)
The Obamacare tax is on line 61 of the 1040 (line 38 on a Form 1040-A, or line 11 Form 1040- EZ). Some tax preparation software automatically calculates and adds the Obamacare tax on the return, so that the Amount You Owe, includes the Obamacare tax. To avoid paying the Obamacare tax, you could either simply subtract out the amount of the Obamacare tax from the amount you owe and write your check for that amount (making sure that you designate the payment for “income tax”), or you could put an asterisk by line 61(line 38 on a Form 1040-A, or line 11 Form 1040- EZ) with an explanation at the bottom of the page to the effect, “*Unlawful tax not included in total,” and then change the total tax on line 74 to exclude the Obamacare tax. Again, as a precaution, you should designate your payment for “income tax.”
In any event, there is no downside risk to designating the application of your payment. It doesn't cost anything and you can't be penalized for doing it.
So long as you do not pay the Obamacare tax, the IRS as a practical matter cannot collect it. According to a report prepared by the Congressional Research Service, Individual Mandate Under ACA
Taxpayers who are required to pay a penalty but fail to do so will receive a notice from IRS stating that they owe the penalty. If they still do not pay the penalty, the IRS can attempt to collect the funds by reducing the amount of their tax refund for that year or future years. However, individuals who fail to pay the penalty will not be subject to any criminal prosecution or penalty for such failure. The Secretary of the Treasury cannot file notice of lien or file a levy on any property for a taxpayer who does not pay the penalty.“[T]he law generally allows taxpayers to designate how voluntary tax payments should be applied.” Dixon v. Commissioner, 141 TC 173, 185 (U.S. Tax Ct. 2013) Dixon. On the other hand, if you do not designate you payment, the IRS generally will apply the payment according to its best interests, and may apply your undesignated payment first to the uncollectable Obamacare tax. In that case, your income tax will be underpaid by the amount of the Obamacare tax, and the IRS will come after you for the balance.
Here are a couple of references: Making Designated Payments; CPA article on Dixon Tax Court case
This issue is not critical this year on account of the relatively low amount of the Obamacare tax. But in succeeding years, until Obamacare is repealed, this issue will be of increasing importance.
I have not seen any announcements from the IRS on this, and it may be that the IRS will automatically apply payments accompanying tax returns to income tax. But, what would you expect the Obama administration to do? It may be that the IRS has made no announcement about this so that taxpayers will be unaware of the issue until it is too late.
The above is not legal, accounting, or tax advice, but merely the ruminations of a concerned citizen. For specific tax questions consult your tax advisor.
Best regards to all Freepers.
The great news is that all these free loading parasites get much smaller payments from their unearned income credits. We are saving BILLIONS!!!
Good point.
STARVE THE BEAST!!
Sustainability is the buzzword, until it comes to this.
You should do this as a matter of good money management regardless.
Agreed.
‘(2) SPECIAL RULES- Notwithstanding any other provision of law—
‘(A) WAIVER OF CRIMINAL PENALTIES- In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.
‘(B) LIMITATIONS ON LIENS AND LEVIES- The Secretary shall not—
‘(i) file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section, or
‘(ii) levy on any such property with respect to such failure.’.
What the Obama-care law text REALLY says on IRS enforcement of the personal Mandate fine/tax
Ping
That is fine (pun intended?), but I am trying to suggest how to avoid inadvertently paying the fine. If once it has been paid, I doubt "folks" will have much luck trying to get it back from the government.
...you should, as many have noted, adjust your withholding and estimated tax payments so that you owe a small amount of tax when you file your return,...is defective thinking. Let me 'splain...
As I have posited prior, my then-prior employer received a letter about 4 years ago from the IRS threatening sanction if I did not adjust my withholding so more $$ was paid to tax. I never received a notice personally. This outraged me, as my tax 'refund' was never much more than $100 and I NEVER owed anything.
A few years later I learned of the lack of enforcement for the 'penalty' and the only regime for collection was the tax refund. Then it all made sense.
So, if you're looking to draw attention to yourself, go ahead and adjust your withholdings as suggested.
Just a HUGE fyi...
Of course I think this is (colorful language serenade). But the fact is your family, neighbors, coworkers, etc. voted in the 'executive' running this executive branch department (IRS) and there's not a damned thing any of us can do about it with lameduck Republicans in charge.
That’s great stuff and all, but you should understand that we are no longer abiding by the law, no matter how clear it is written.
They will tell you what you owe and if you want to argue about it you will be, well, re-educated.
Its our civic duty to pay the tax, err fine, OH whatever, unless we get tax credits, then its fair
Its our patriotic duty...DADADA
HEALTH CARE FOR ALL!
Good luck with that ...
What if you have no income to declare for the year?
hmmm
This is very helpful. Thanks
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