IRS changes policy:

Agency to reject tax returns that don’t say if Affordable Care Act coverage requirements were met.

In another about-face, the Internal Revenue Service has decided it will begin rejecting electronically filed tax returns that do not indicate whether the household met the health insurance coverage requirements of the Affordable Care Act.

The decision comes just before the Nov. 1 kickoff date for enrollment in individual health plans for 2018.

The law requires Americans to have health insurance that provides “minimum essential coverage.” If they don’t, they must pay a penalty for each month they lacked coverage unless they qualify for one of about 18 exemptions.

Taxpayers are supposed to fill in a line on

their tax return that indicates whether they had qualifying coverage that year. In the past, the IRS still processed tax returns that did not answer that question.

Starting with 2016 returns, the IRS was planning to automatically reject e-filed returns that were silent on this question. However, after President Trump issued an executive order directing federal agencies to “minimize the economic burden” of the health care act, the IRS told tax professionals that it would not reject what it calls silent returns.

In early February it issued a statement that said, consistent with the executive order, “the IRS has decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn’t indicate their coverage status. However, legislative provisions of the ACA law are still in force until changed by the Congress, and taxpayers remain required to follow the law and pay what they may owe.”

Now the IRS backtracked again. In a statement posted on its website for tax professionals, it said, “For the upcoming 2018 filing season, the IRS will not accept electronically filed tax returns where the taxpayer does not address the health coverage requirements of the Affordable Care Act .” It added that this will be the first time the IRS will not accept silent returns. It said that returns filed on paper that do not answer the question “may be suspended” pending further information and refunds could be delayed.

“They discussed this with the National Taxpayer Advocate and decided the best way to enforce it is up front rather than going after people after they filed,” said Timothy Jost, a professor emeritus at the Washington and Lee University School of Law. “The vast majority of tax enforcement is done by tax preparers and taxpayer software rather than the IRS running after people after they filed.”

Mark Luscombe, principal federal tax analyst with Wolters Kluwer Tax & Accounting, said that based on IRS numbers, it looks as though a record number of taxpayers would file extended returns for 2016, perhaps brought on by uncertainty over the ACA mandate.

The penalty for not having proper health insurance started small but now packs a wallop. It is levied for each member of the household who didn’t have minimum coverage or an exemption. The annual amount is the greater of:

$695 for each adult and $347.50 for each child, up to $2,085 per family, or

2.5 percent of the tax filer’s modified adjusted gross income minus the federal tax filing threshold. (This is the household’s standard deduction plus personal exemptions; below this amount, you are not required to file a tax return.)

In no case will the annual penalty exceed the national average premium for a bronze level plan available through a state or the federal marketplace. For 2016, that premium ranged from $2,676 per year for an individual to $13,380 per year for a family with five or more members. The IRS has not announced the number for 2017.

Bear in mind, the annual penalty is divided by 12 for each month a member of the household did not have minimum coverage.

Penalties must be paid when you file your taxes, unless you claim an exemption.

You can claim a dozen exemptions right on Form 8954 and file it with your tax return. Some of these are: Your income was below the tax filing threshold, your coverage gap was no more than two consecutive months, you were living abroad or not lawfully present in the United States, you were incarcerated, you were part of a health sharing ministry or Indian tribe or coverage was unaffordable (which generally means the cheapest coverage you could get would have cost more than 8.13 percent of your household income).

For six other exemptions, you must apply to the federal marketplace and if approved, you will get a unique code that you will enter on Form 8954. These include: You are a member of a recognized religious sect, you couldn’t get Medicaid only because your state did not expand Medicaid coverage, coverage was unaffordable based on your projected income, you could not renew existing coverage.

For a complete list of exemptions, see www. irs.gov/instructions/ i8965.