Q: Could somebody be imprisoned for not purchasing health insurance under the House health care bill?
A: Both House and Senate bills would levy a tax on persons who refuse to obtain coverage. Willfully evading that tax could result in jail time under the bill passed by the House – but not the bill approved by the Senate Finance Committee.
It is being widely reported that the health care bill has the following language: "Section 7203: misdemeanor willful failure to pay is punishable by a fine of up to $25,000 and/or imprisonment of up to one year." Additionally it’s being reported that fines and imprisonment could be as much as $250,000 and 5 years in jail.
Is this true? Is it true that the House health care reform could result in jail time for not having health insurance as claimed in this release?
The letter attached to our reader’s question was written by Thomas Barthold, chief of staff of the House Joint Committee on Taxation, to Rep. Dave Camp of Michigan, on the subject of enforcing the individual health insurance mandate of H.R. 3962, the House-passed bill. That mandate requires people to have health insurance, unless they are below a certain income threshold ($9,350 for singles, $18,700 for couples in 2009). Those who don’t get coverage will be subject to a tax of 2.5 percent of their adjusted income beyond that threshold, up to the cost of the average national premium.
The letter from the JCT includes a list of civil and criminal penalties. These aren’t penalties for not buying insurance, however. They’re penalties for refusing to pay the resulting tax. Barthold’s letter says:
Barthold letter, Nov. 5: Depending on the level of the noncompliance, the following penalties could apply to an individual:
- Section 7203 – misdemeanor wilful failure to pay is punishable by a fine of up to $25,000 and/or imprisonment of up to one year.
- Section 7201 – felony wilful evasion is punishable by a fine of up to $250,000 and/or imprisonment of up to five years.
These are not sections of the House bill itself. Rather, they are sections of the current Internal Revenue Code, laying out the consequences of willful tax nonpayment. (Here’s section 7203, section 7201, and an additional section that sets a higher fine than 7201, as noted in the letter’s footnotes.)
As Barthold points out in his letter, "the majority of delinquent taxes and penalties are collected through the civil process," without resort to criminal penalties. Prison terms are relatively rare. Barthold notes that in 2008 a total of 498 persons were incarcerated for federal tax crimes, while the Internal Revenue Service assessed 392,000 civil penalties for inaccurate tax returns. Imprisonment would require the government to prove, beyond a reasonable doubt, that the tax evasion was "willful" and the accused had the ability to pay.
In the Senate, the Finance Committee’s health care bill was amended to nullify the possibility of jail time for not paying the penalty tax. It stipulates that in the case of nonpayment, "such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure." Instead, the Senate measure would allow the government to collect the tax by deducting it from any IRS tax-refund checks or other government payments. Should the full Senate approve that language, a House-Senate conference committee would have to wrestle with the question of whether or not a person who refuses to obtain coverage and refuses to pay the penalty can be charged with criminal tax evasion.
Update, May 11: The health care bill that was signed into law by President Obama says criminal penalties will not apply to those who refuse to get coverage and refuse to pay the penalty tax. As we wrote in a March 2010 post on the IRS’ responsibilities, the law says on page 131: "In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure."
Barthold, Thomas. Letter to Rep. Dave Camp. 5 Nov 2009.
U.S. House. "H.R. 3962, Affordable Health Care for America Act." (as passed 7 Nov 2009.)
"Willful failure to file return, supply information, or pay tax." Title 26 U.S. Code, sec. 7203.
"Attempt to evade or defeat tax." Title 26 U.S. Code, sec. 7201.
"Sentence of fine." Title 18 U.S. Code, sec. 3571.
U.S. Senate. "S.1796, America’s Healthy Future Act of 2009." (as introduced 19 Oct. 2009.)