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Relief for taxpayers filing with incorrect premium credit data extended to State Marketplaces

In further response to the discovery of incorrect information on Forms 1095-A, Health Insurance Marketplace Statement, the Treasury Department has expanded its previously-issued relief. Any individual enrolled in qualifying Marketplace coverage—either through the Federally facilitated marketplace or a State-based marketplace—who received an incorrect Form 1095-A, and filed his tax return based on that form, doesn’t need to file an amended tax return. IRS will not pursue the collection of any additional taxes from these individuals based on updated information on any corrected Forms 1095-A.

Background on the Code Sec. 36B premium tax credit and Form 1095-A. Under Code Sec. 36B(a) certain taxpayers are allowed a refundable premium tax credit to help afford health insurance purchased through an Exchange. A taxpayer’s premium tax credit is the lesser of the premiums for the plan or plans in which the taxpayer or one or more members of the taxpayer’s family enroll and the excess of the premiums for the applicable second lowest cost Silver plan covering the taxpayer’s family over the taxpayer’s “contribution amount.” (Code Sec. 36B(b)(2))

Eligible individuals and families can choose to have advance credit payments paid directly to their insurance company to lower what they pay out-of-pocket for their monthly premiums.

Form 1095-A, a new form for 2014, is used to report certain information to IRS about family members who enroll in a qualified health plan through the Marketplace. Form 1095-A also is furnished to individuals to allow them to reconcile the credit that they actually earned with advance payments of the premium tax credit and then report any difference between those two amounts on their tax return. One piece of information included in Form 1095-A is the premium amount for the second lowest cost Silver plan in the taxpayer’s geographical area.

Persons who signed up for coverage through the Marketplace in 2014 should have received their Form 1095-A statement in the mail in February 2015. (Fact Sheet 2015-9, February 2015; Weekly Alert ¶  30  02/19/2015)

Thirteen states and Washington, D.C. set up state Exchanges, while 37 states did not set up state Exchanges. Residents of those 37 states are eligible to use the federally-facilitated Marketplace that they access via the Healthcare.gov website.

Background on incorrect Form 1095-A data and previous relief. On Feb. 20, 2015, the U.S. government’s Centers for Medicare and Medicaid Services (CMS) announced that about 20% of the tax filers who had Federally-facilitated Marketplace coverage in 2014 and used tax credits to lower their premium costs—about 800,000 tax filers—received a Form 1095-A with incorrect data. Those forms included the monthly premium amount of the second lowest cost Silver plan for 2015 instead of 2014. See Weekly Alert ¶  34  02/26/2015 . The CMS announcement also provided instructions for how taxpayers could determine whether the Form 1095-A that they received was incorrect and what to do if they received an incorrect form and had not yet filed their 2014 income tax return.

In response to this problem, IRS announced that persons who had purchased health insurance from the federal Marketplace and received incorrect Form 1095-A and had already filed their 2014 tax return did not need to file amended returns. IRS would not pursue the collection of any additional taxes from these individuals based on updated information in the corrected forms. Nonetheless, if they wished to do so, individuals could choose to file amended returns.

A tax filer is likely to benefit from amending if the 2015 monthly premium for his second lowest cost Silver plan is less than the 2014 premium. For example, if a filer’s original form lists a premium of $100 for such a plan and her updated form lists a premium of $200, it may be in her interest to refile. IRS suggests that individuals consult with their tax preparers to determine if they would benefit from filing an amended return.

RIA observation: IRS’s announcement does not contain a date by which a return would have had to have been filed in order to take advantage of the “already-filed-equals-no-amended return required” rule. Its announcement was made on Feb. 24, so it is very likely that any return postmarked or electronically filed on or before Feb. 24 would qualify.

Newly expanded relief. Treasury now indicates that its previous relief announced in February applies not only to tax filers who enrolled through the Federally facilitated marketplace, but also those enrolled through a State-based marketplace. Any individual who enrolled in qualifying Marketplace coverage, received an incorrect Form 1095-A, and filed his tax return based on that form does not need to file an amended tax return. IRS will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected forms.

As before, some individuals may choose to file amended returns. Treasury intends to provide additional information to help tax filers determine whether they would benefit from filing amended returns.

FAQs provide further information. CMS is notifying individuals who are affected by these additional errors via emails, phone calls and messages in consumers’ Marketplace accounts.

The FAQs advise individuals who have not yet filed their taxes to wait to file until they receive their corrected forms. To the extent that individuals are unable to file their taxes by April 15 because they haven’t received a Form 1095-A, Treasury will consider options for possible relief and will provide additional information closer to the deadline.

The FAQs emphasize that the expanded relief doesn’t apply to an individual who did not enroll in Marketplace coverage, but nonetheless received a Form 1095-A and erroneously claimed a premium tax credit on his return. It also does not apply to an individual who was enrolled in Marketplace coverage, but did not receive a Form 1095-A, and filed a return without this information. These individuals should file amended tax returns. If these taxpayers fail to do so, IRS may contact them following its normal procedures in cases where additional taxes are due.

References: For the premium tax credit, see FTC 2d/FIN ¶  A-4241; United States Tax Reporter ¶  36B4; TaxDesk ¶  138,700; TG ¶  1381.