Taxpayers Can Dodge Obamacare Penalties By Not Overpaying Taxes

The IRS can only extract penalties from your refund


If an individual does not carry insurance coverage and does not have exemptions, that's where a tax penalty could come into play. In 2014, the health law includes a $95 penalty for not carrying health insurance. This penalty is administered by the Internal Revenue Service through the tax return system. In order to collect, the IRS will typically dock that amount from an individual's tax return.

Gene has, however, already thought this issue through. He plans to adjust his "quarterly estimated payments to ensure I do not have a tax refund, which I understand to be the only source from which the IRS can extract any penalties that I refuse to pay voluntarily."

This, Livingston said, is actually a strategy that might just work. For that to happen, the tax filer would need to be cognizant of the estimated tax penalty, which the IRS can levy against filers that pay far too few taxes. But keeping that in mind, dodging a refund could mean dodging the mandate fine.

"The needle you would have to thread to execute this is making sure you've paid enough taxes to avoid the estimated tax penalty," Livingston said, "But not so much that you would get a refund."