One of the necessary features of any law is enforcement. Taxes are laws, and if you don’t pay your taxes, the government swoops down on you like a raptor on a rodent. You then must either pay up or prove that you don’t owe the money the government says you owe. Otherwise, government can garnish your wages, take your house, or maybe even put you in prison. None of that applies to the “tax” that Chief Justice John Roberts “discovered” in the Affordable Care Act, which the legislation had mistakenly labeled a “penalty” for noncompliance with the mandate to buy health insurance. To help dissuade the judiciary from “legislating from the bench,” this newfangled tax/penalty should forevermore be referred to as the “RobertsTax.” (CAUTION: reading further may make you a “subversive.”)
If having provisions for enforcement is necessary for a “tax” to really be a tax, then the RobertsTax isn’t a tax at all — it’s a suggestion. That’s because ObamaCare expressly forbids the IRS from prosecution for nonpayment of the RobertsTax. However, the IRS can deny the taxpayer his income tax refund if he owes the RobertsTax. (This has been addressed at The American, Forbes, Reason, NPR, Businessweek and elsewhere.) But if denial of one’s income tax refund is the only mechanism available to the IRS to enforce the RobertsTax, then the RobertsTax can be easily avoided by simply not overpaying one’s income tax throughout the tax year.
For those Americans just emerging from the 47 percent who don’t pay income taxes into the 53 percent who do, ObamaCare becomes an issue. If they have a federal income tax bill of even a single dollar, they become subject to the RobertsTax.
Line 40 of Form 1040 shows that the Standard Deduction for an unmarried person is $5,950 and Line 42 shows the exemption as $3,800. In the Tax Table on page 79 of the 1040 instructions booklet, we see that if one has a Taxable Income of $5 (the threshold of taxability) that one owes $1 in federal income tax. So unless I’m missing something, an income of $9,755 would have made one subject to the RobertsTax had it been in effect in 2012. One’s last penny of income can come at a rather steep price if it triggers the RobertsTax, which starts at $695.
It seems every time that tax rates go up, it’s hailed as the largest tax hike in history. But when a $1 tax bill becomes a $696 tax bill, it’s safe to say we have a new all-time winner. The RobertsTax may not only be the largest tax hike in history, it may also be the most regressive tax hike in history, as it’s much more likely to hurt low-income earners. (That’s what happens when the judiciary starts writing tax law.)
The trick to not overpaying is to structure your tax payments throughout the tax year so that you finish the year owing the IRS. The RobertsTax avoider should read up on payroll withholding, which is handled with Form W-4, as well as estimated taxes paid on a quarterly basis, which is handled by Form 1040-ES. One resource that the RobertsTax avoider should dip into is Publication 505, “Tax Withholding and Estimated Tax.” Refer to “Getting the Right Amount of Tax Withheld” on page 12.
Page 12 also explains who’s exempt from payroll withholding, which is basically anyone who won’t owe federal income taxes. The 47 percent who don’t pay income taxes didn’t worry about the mandate to buy health insurance that was in the original ObamaCare because they were exempted. But with the new, improved ObamaCare that Justice Roberts has given us, any American can choose not to buy health insurance.
My advice for taxpayers who can’t afford to pay the RobertsTax is the same as for those who can: For the first three quarters of the tax year, endeavor to make your payroll withholding and estimated taxes to be an exact proration of your yearend tax bill on your income. Then, in the final quarter, adjust your withholding down by filing a new W-4 for the remainder of the year and (if you file the 1040-ES) adjust down your final quarterly payment so that you end the year owing the IRS and are not due a refund. The taxpayer may then decide to go ahead and pay the RobertsTax, but he’ll be in a position to not incur additional wrath from the IRS should he be unable to pay.
It may be that the IRS has more latitude in enforcing the RobertsTax than is commonly thought. Quin Hillyer writes: “[The IRS] can choose to apply ordinary income taxes to the penalty first [i.e., the RobertsTax], before crediting the citizen with having paid his due income taxes — and then the IRS can impose a penalty for failing to pay those taxes, and then prosecute or garnish wages for failing to pay that penalty.”
Such a tactic would seem to violate the letter of ObamaCare. But regardless of whether the IRS has other means to collect the RobertsTax than keeping refunds, not overpaying your income taxes during the tax year is perfectly legal and may save you money. But if you take that tack, be sure to owe the IRS less than $1,000 on January 15, or you’ll get hit by the Estimated Tax Penalty on Line 77 of the 1040. (If you have questions about the Line 77 penalty, refer to Form 2210.)
For low-income earners who have always been blasé about taxes, the vigilance I’m recommending may seem like a lot of trouble. Some of these folks don’t have taxes withheld from their paychecks anyway. And those who do may think of their withholding as a savings account which they’ll cash out at the end of the year with their refunds; it keeps them from immediately spending everything they earn.
But the RobertsTax changes all that, as it makes the relationship between low-income Americans and the IRS much more serious if their income suddenly becomes taxable, even if all that they owe the IRS is a buck.
To Americans who are on the cusp of taxability and have new worries, I say welcome to the club. Congress, through the IRS, has already drafted 53 percent of Americans into their army of unpaid tax accountants, complicating their lives and making them all into potential lawbreakers. And President Obama is continually saying that he needs “a little bit more.” Enough of this malarkey! It’s time for government to get a little bit less. So adjust your withholding and quarterly payments accordingly. All Americans, not just those with low incomes, should stop overpaying their taxes.
ObamaCare was awful law to begin with. But now with the RobertsTax, America seems to have a law that can’t be enforced and a tax that can’t be collected. Enjoy.
Jon N. Hall is a programmer/analyst from Kansas City.
photo credit: 401(K) 2013 via photopin cc