Limbaugh says you can avoid the fines but at the cost of a tax refund. Limbaugh: How to dodge ACA tax

Conservative commentator Rush Limbaugh says he’s discovered a sure-fire way to skirt Obamacare’s penalties for failing to obtain health coverage next year – but you’d have to give up a fat tax refund.

The fine for failing to obtain insurance under the so-called “individual mandate,” which starts at $95 or one percent of taxable income next year, will automatically be collected by the IRS from tax refunds. But if you make sure you don’t get a refund, the agency won’t be able to collect the penalty, Limbaugh told listeners.


“[I]f you structure your taxes so that you do not get a refund, you do not have to buy insurance and you do not have to pay a fine ‘cause they can’t collect it from you if you don’t have a refund due — and that is just another nail in the coffin of Obamacare imploding on itself,” Limbaugh said on his show Thursday night, according to a transcript.

Problems have plagued the website for individuals to sign up for coverage since it went live on Oct. 1 , a controversy now consuming Obama administration officials.

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Experts say Limbaugh is correct on one point: The IRS lacks teeth in enforcing the individual mandate. The Affordable Care Act prohibits it from using liens or levies to collect the penalties, tools the agency regularly employs to collect other unpaid taxes. Nor can it criminally prosecute anyone for failing to pay up.

“One would need to make sure that he/she is not due a refund … [T]he point Limbaugh makes about refund filers, while a bit coarse, is true,” said Robert Kerr, senior director of government relations at the National Association of Enrolled Agents.

But the fines can build up, with interest, so ignoring the penalties could come back to haunt negligent taxpayers, some experts said.

Even if you don’t pay your penalty—which grows to $695 or 2.5 percent of income by 2016—the IRS can’t come banging on your door. Some Republicans have claimed otherwise, like Sen. Rand Paul (R-Ky.), who said last month that individuals will “go to jail” if you don’t pay the fine.

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The issue would be moot for many if trends continue: about 75 percent of Americans actually overpay their taxes and receive average refunds of $2,700 each year. The agency can just deduct the penalty out of refund checks, like it does for single fathers who owe child support.

Taxpayers could, however, personally estimate how much they owe Uncle Sam, giving them control over whether they owe taxes for paying too little throughout the year, are due a refund for paying too much, or are spot-on.

Most taxpayers don’t go through the trouble as it requires a chunk of time and calculations. Taxpayers can also adjust their withholding allowances, but that is less precise. And they’d have to be careful to not underestimate their tax liability by more than 10 percent, or they would be charged a fine.

But if they don’t get a tax refund check, the uninsured won’t have to worry about the feds deducting the individual mandate from their pay.

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“There’s no way for the IRS to collect the penalty,” said an industry source working with the IRS on implementing the law.

Limbaugh’s epiphany on penalty collection restrictions isn’t new. Then-IRS Commissioner Doug Shulman in 2010 said the most obvious way to enforce the fees would be to use tax refunds.

“It is true there will not be a lien or other collection action taken against the taxpayer if they owe the penalty and are not getting an income tax refund,” said Gene King at H&R Block.

The penalties won’t disappear—they’ll simply add up at the IRS over the years. They could start being collected out of any refunds the taxpayer is owed in any subsequent year, King said.

Plus, overdue charges will accrue interest.

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The IRS does intend to collect interest on any unpaid penalties, according to industry sources familiar with the issue, although the agency hasn’t issued any official guidance yet. So the sum of the unpaid penalty will keep accruing interest and the liability won’t go away.

At least at first, the agency isn’t worrying too much about the unpaid penalties, since it’s dealing with all sorts of other complicated components of the law within its jurisdiction.

“The administration in general is really de-prioritizing the penalty collection,” said the IRS source. “They’re not going to be doing a lot of enforcement there. Wherever they can have a loose and easy interpretation of things, that’s advantageous to the taxpayer.”

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Since the penalty will be assessed along with all other unpaid taxes—which are subject to liens and levies—things could get complicated. If someone owes a penalty along with other back taxes, the IRS can only use traditional collection methods on part of the sum.

Brian Haile, senior vice president for health policy at Jackson Hewitt, says Limbaugh’s assertion “may have limited relevance for many Americans” — not only because most Americans get a tax refund but because those most likely to be hit with the penalty are also more likely to get some sort of tax credit from the government, such as the earned income tax credit for the working poor.

“Additionally, the proportion receiving refunds is even higher among taxpayers with adjusted gross incomes between $15,000 and $50,000, which is a demographic that is disproportionately likely to be uninsured,” he said.

Kim Dixon contributed to this report.