Update, March 23: “‘It is true that thousands of small businesses will be forced to pay Obamacare taxes quarterly in 2014,’ a Senate Budget Committee aide told Breitbart News on Friday afternoon.”
March 23: “Drudge, the ‘Shared Responsibility’ Tax, and Estimated Payments”
March 25: “Diligent Drudge Includes Obamacare Penalty in First Federal Tax Estimate; Media Hysteria Ensues, But AP Ignores”
Based on his representations, Internet news pioneer Matt Drudge is a bit early in carrying through on what he believes is his requirement to pay the price for not carrying health insurance.
Drudge, who claims to self-employed, provocatively tweeted this afternoon that he paid the first installment of his 2014 estimated taxes, including the applicable portion of his 2014 “Obamacare penalty”:
Reaction on the left has been hysterical.
Dylan Scott at Talking Points Memo claims that Drudge “Is (Probably) Lying.”
Jeffrey Young at the Huffington Post calls it a “weird tweet.”
A Daily Kos poster writes that Drudge has been “debunked.” No, he hasn’t.
A White House aide has piled on. Jessie Lee, Director of Progressive Media and Online Response (yes, the White House really has such a position), has called Drudge’s claim “a flat lie. No fee for previous year. Scary how much influence he once had.”
No, Jesse. What’s scary is how ignorant you and your progressive media friends are. Drudge believes, with strong basis, that the law requires him to pay one-quarter of the “fee” by April 15 of this year.
Current tax law dictates that to avoid a late payment penalty for not paying taxes on time, a person who does not have money withheld from their paycheck must consider his or her entire estimated tax bill for the calendar year. In 2014, that includes, as it always has for decades, the federal income tax, the Social Security payroll tax, the Medicare payroll tax, and an exhaustive list of other taxes.
But this year, it also arguably includes a new item known as the “Individual Mandate Excise Tax” (which, we must recall, the Supreme Court specifically determined is a tax) for not having health insurance coverage during the year. To use a round number, if the Obamacare-refusing Drudge’s income subject to the Obamacare penalty tax is $1,000,000, he must include $10,000 in his total estimated annual federal tax liability. Subject to certain exceptions, the law requires, subject to potential penalties, that Drudge pay 25 percent of his total estimated liability by April 15. That would obviously include $2,500 of the $10,000 Individual Mandate Excise Tax in my example. The remaining 25-percent increments are due on June 15, September 15, and January 15 of next year.
To the argument that Drudge can opt out of the Individual Mandate Excise Tax by simply claiming “hardship,” as recent HHS regulations have vaguely indicated, it is not at all clear how seriously the Internal Revenue Service will take a “hardship” claim made by someone who roughly a decade ago revealed that his income is quite substantial, and whose web site now attracts over 10 billion visits per year. It would be way too easy for an IRS which clearly has gotten too big for its britches to target and make an example of him. So why take chances?
Drudge followed up on his original tweet with an argument in line with that exact concern:
Contrary to what HuffPo’s Young claims, the evidence in the information available to the average taxpayer and practitioner that “The mandate penalty is separate from income taxes and isn’t due until 2015″ is not convincing.
Federal Form 1040-ES has a Line 12 requiring taxpayers to consider all other taxes he or she might owe for the year:
The specific instructions for Line 12 identify taxes which should be considered for inclusion:
The “exceptions” are unrelated to the current discussion.
Now we need to go to the latest instructions for Line 60, namely those present in the 2013 tax package at Pages 48 and 49. The instructions begin as follows (the line from Form 1040 is presented for clarity):
The instructions for Line 60(c) identify 21 possible taxes to include if they apply.
Even if one assumes that those 21 taxes represent all of the other possible taxes to include on the 2013 form (I’m not convinced that they are), that does not mean that the list is the same for 2014. There is no reason for the ordinary taxpayer or tax practitioner to assume, based on the Form 1040 instructions for 2013 or the Form 1040-ES instructions for 2014 (representing everything they’re supposed to need to prepare 2014 tax estimates) that they can with absolute safety exclude the “Individual Mandate Excise Tax,” i.e., the Obamacare penalty tax, from consideration and avoid a late estimated tax payment penalty when they file their 2014 return.
Well, what about the fact that the Form 1040-ES instructions for Line 12 refer to “any of the taxes that would have been entered on your 2013 Form 1040 … Line 60″? Doesn’t that exclude the Individual Mandate Excise Tax, because it doesn’t take effect until this year?
In my view, not automatically. That’s because there is no mention whatsoever of the Affordable Care Act or the Individual Mandate Excise Tax anywhere in the Form 1040-ES guidance. Because the instructions don’t specifically state that the tax should be excluded, and because it is clearly a tax which applies to actions taken and not taken during calendar year 2014, a taxpayer required to make estimated payment who chooses to play it absolutely safe would include the excise tax in his or her estimated tax calculations.
Props to Drudge for forcing attention to the situation. Brickbats to all those who are pretending they know it all, when they don’t.