Health mandate could absorb tax refund

IRS enforcement official Steve Miller on Thursday told Senate Finance members that taxpayers failing to purchase health insurance could have their tax refunds seized.

Beginning in 2014, the IRS will fine taxpayers without adequate health coverage and by 2016 those fines amount to the greater of $695 or 2.5 percent of household income, up to $2,085.

Since the IRS is prohibited from using its usual tactics to extract money from taxpayers, such as liens or audits, it could reduce a taxpayer's refund to collect the penalty for having inadequate insurance. 

"We have a refund offset mechanism in order to enforce that provision [the healthcare mandate]," Miller told Finance members at a hearing on IRS enforcement.

The healthcare law stipulates that the IRS receive documentation from insurance companies confirming that taxpayers are adequately covered. If the agency determines that the coverage is lacking, it will issue a notice to the taxpayer notifying them of the fine.