How will the IRS know if I have medical insurance or not?

05-26-2013Health Care

A self-employed client asked how the Federal government and the IRS will know in 2014 if she was or was not covered by health insurance. She does not currently have coverage and was evaluating not making any changes. However, unless she told the IRS, how would the government know to assess a penalty?

Insurance companies will send a report of coverage to IRS and taxpayers, listing the names, addresses and tax ID numbers of all individuals with coverage. If an employer self-insures, the employer will make the report. (This includes self-employed.) No medical history will be listed. The Internal Revenue Service will then check to make sure that uncovered individuals have paid the penalty, which is capped at $95 a person for 2014. The IRS can enforce the penalty only by docking tax refunds; it cannot use liens or levies.