Taxes and Today’s SCOTUS Ruling

In an analysis of today’s Supreme Court ruling by Lyle Deniston of SCOTUSblog, the tax implications of the healthcare ruling become a little less opaque. According to his analysis, the 5-4 SCOTUS ruling that upheld the individual mandate has tax implications in that its provisions would require an individual to who refuses to pay health insurance to pay a tax. He remarks that “the Court brought into full public view—perhaps for the first time—the fact that the nation’s healthcare market is going to have as customers only those who opt to buy insurance rather than pay a tax.”

The decision, though, leaves much in doubt as to how effective the enforcement of this law will be, in terms of compelling individuals to buy health insurance. The concession apparent in the Chief Justice’s opinion reveals how difficult it will be to guarantee an upswing in business for insurers saying that “if one chooses to pay [the tax] rather than obtain health insurance, they have fully complied with the law.” The Chief Justice even suggested individual’s willingness to buy insurance would be dampened when comparing the cost of healthcare and the cost of the tax, the tax assessment being significantly less than the cost of insurance.

If the tax provision does go into effect about two years from now, individuals who do not obtain health care will be assessed a tax that they must pay along with their federal tax income. The taxable amount will be determined by family income. In order to enforce the tax, it must be determined that the individual who refused to buy health insurance did so willingly and with more intent that simply a failure to include the penalty payment in his tax return. The Chief Justice’s opinion was clear in stating that this willful failure to pay the tax could result in criminal prosecution.

According to the Opinion of the Chief Justice, “Those subject to the individual mandate may lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing they may not do is not buy health insurance and not pay the resulting tax.”

It remains to be seen what effect this law will have on the healthcare and the tax code.

 

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