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How does the government know whether you have health insurance? A lot has been made of the government mandate, under the Affordable Care Act (“ACA”), or “ObamaCare”, that everybody has to have health insurance, or pay a penalty. This penalty is known as the “shared responsibility penalty”. But how do they know?

I was very curious about this, and so I did some research.

As it turns out, starting next year (2015) there will be a section on your Federal tax return in which you will have to confirm that you have health insurance, or pay the penalty if you don’t.

In otherwords, it will be self-reported.

But before you think “Well, I can just say that I do when I don’t,”, bear in mind that your Social Security Number (“SSN”) is tied not only to your tax return, but also to your health insurance – it’s one of the first things that insurers (and indeed, medical providers) ask for these days. So, while you might get away with it, you might not – and especially if you are audited.

Moreover, employers are now required to report employer-provided health insurance on your W-2. Says the IRS:

The value of the health care coverage will be reported in Box 12 of the Form W-2, with Code DD to identify the amount. There is no reporting on the Form W-3 of the total of these amounts for all the employer’s employees.

In general, the amount reported should include both the portion paid by the employer and the portion paid by the employee. See the chart, below, and the questions and answers for more information.

An employer is not required to issue a Form W-2 solely to report the value of the health care coverage for retirees or other employees or former employees to whom the employer would not otherwise provide a Form W-2.

It’s not too far of a stretch to imagine that for any return that does not have a value in Box 12 of the W-2, those returns will be flagged for closer scrutiny, looking specifically at the section on health insurance.