Little white lies are never a good idea on your taxes, and that includes any statement about whether you were covered by a health insurance plan that year.
If you provide false information about your health insurance coverage, you run the risk of a penalty and additional payments down the line. When you get caught, you will need to pay back any endowments you received, and could be charged with fraud or incur other financial penalties.
We’ll look at how you should properly state whether or not you had health insurance on your taxes, and how you may be penalized for lying about your coverage.
What Happens If You Lie About Having Health Insurance on Taxes?
If you are caught lying about your healthcare coverage status on your federal tax return, there are a number of ways the IRS can take action to resolve your taxes and receive the appropriate payment and filing status. The consequences and fees can be severe.
IRS Audit and Review
You may submit one set of information about your health insurance on your return. But employers, banks, and other institutions also submit information about their employees and customers with the IRS. If discrepancies are detected between those corporate records and individual returns, the IRS may send a notice alerting you of the difference.
In some cases, you may be subjected to an official audit, which often requires several months of work and processing and can incur a significant financial penalty. You will need to secure professional assistance to properly complete an audit, and will be required to submit several years’ worth of your financial history as proof of your status.
Financial Penalties
An audit that is not resolved in your favor could be the cause for an average of $9,500 in additional tax payments, as well as other penalties that can be levied against you for lying on a federal return.
You can also lose access to a premium tax credit in future years if you have been flagged as fraudulent.
Fraud or Other Charges
Depending on the outcome of your audit, you may be charged with either negligence or fraud as a civil penalty.
The IRS may also choose to prosecute you on criminal charges if the amounts are large enough. These cases take years to process, and can result in jail time and other hefty fines.
Inability to Secure a Loan in the Future
Beyond the initial resolution of your return, you may also be denied for a mortgage or other loan in the future.
Does This Apply to My Original Health Insurance Application?
Simply put, lying on a federal return about whether or not you were covered by health insurance is breaking the law, and is far more trouble than it’s worth. There are immediate penalties as well as ramifications in the long run.
However, some may still struggle with the costs of healthcare to begin with, and think it would be easier to give false information about their insurance coverage than incur those costs (which admittedly can be high).
How Can People Lie When They Apply for Health Insurance?
To sidestep any potential issues, another way people might make a false claim about their health insurance coverage is to inaccurately report their income level to receive a better subsidy to improve their coverage.
This occurs when people apply for government-sponsored health plans under the Affordable Care Act, where your monthly premium and coverage can be based in part upon your annual income. This is how you may be able to qualify to pay a lower monthly premium on your plan using a federal subsidy.
What If I Provide a False Income Estimate?
If you provide a false estimate on what your income is expected to be in the coming year, you might receive a different monthly premium for the coverage you want. But if you do, you may be required to pay back the difference in the subsidy on next year’s return.
This is because the subsidy on your health care services is actually an advance on the tax credit you will receive when you file. This subsidy tax credit is incorporated into your return when you file the following year.
Incorrect estimates when you apply for a health insurance subsidy will require correction on your federal taxes, usually meaning that you will have to pay back the overage you received in subsidies.
Are There Penalties for Not Claiming Any Health Care Plan?
The Affordable Care Act utilizes an individual mandate that requires all Americans to have qualifying health coverage.
To qualify, your health care plan had to meet guidelines for minimum essential coverage. Numerous elements go into this definition, but a sound overview of this requirement would be to say that your plan has to cover most common health insurance needs like hospitalization, emergency care, pregnancy and maternity, prescription medication, and common preventative wellness care.
This gave rise to the modern “government marketplace” that is an alternative to employer-sponsored insurance plans, or that offers plans to those that do not receive coverage otherwise.
There are some exemptions to the Affordable Care Act, including care that would be a financial hardship (based on your household income), significant hardships, having an income below the poverty level, short gaps, and a few other exceptions.
Are There Penalties for Not Being Covered?
From 2014 to 2018, the individual mandate also came with a penalty for non-compliance. Essentially, if you did not have adequate health coverage, you would have to pay a fine on your federal tax return.
However, from 2019 on there are no penalties for not providing health insurance information. The individual mandate for enrollment, however, is still in force.
Some states do have penalties in place for those who do not have a health plan, which may involve penalties on state returns.
How Should I Submit My Health Care Coverage?
The easiest way to avoid any penalties or investigations by the IRS is to properly submit all your health insurance information on your federal return.
Most self-service tax filing companies will provide an opportunity for you to submit any paperwork or tax forms related to your healthcare coverage. This commonly includes versions of IRS tax form 1095.
If you receive one of these forms, you should include it with your federal return. You should receive some version of this if you have coverage through your employer, or through some other means.
If you have insurance through a health insurance marketplace plan, you may need to complete an additional form to reconcile any potential discrepancies with your annual income. This means that you will need to account for any difference between what you actually earned, and the income estimate you gave when you first filed for any federal government subsidies to apply to your insurance plan.
Adjustments through this form may mean additional tax payments, or it could qualify you for additional credits if your reported income is lower than expected.
What If I Was Not Covered at All?
If you did not have any kind of health care coverage during the tax year, you will not need to take any action.
You will not need to file an exemption on your federal return, since penalties are no longer enforced for those who do not have coverage.
However, if you live in a state that does have a penalty in place, you will need to file the appropriate exemption or be prepared to pay those fines.
