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IRS Commissioner details how taxpayers handled ACA provisions on their 2014 returns

IRS Commissioner John Koskinen has written Members of Congress to report on how individual taxpayers handled Affordable Care Act (ACA) provisions on their 2014 returns. The provisions at issue are the premium tax credit and advance premium tax credit for certain qualifying individuals, and the individual shared responsibility payment that taxpayers must make if they don’t carry qualifying health insurance and aren’t exempt from the shared responsibility payment. The preliminary data showed that overall reporting went smoothly. Although there were some compliance gaps and in some cases erroneous payments, Koskinen’s overall assessment was that those problems were to be expected given that the ACA provisions were new for the 2015 filing season. He pledged improved IRS processes and enhanced support for affected taxpayers.

Background on premium tax credit and advance premium tax credit. The Affordable Care Act (ACA) created Health Insurance Marketplaces, also known as Exchanges, which are where individuals find information about health insurance options, purchase qualified health plans, and, if eligible, obtain help paying premiums. The ACA also created a premium tax credit (PTC) to assist eligible taxpayers with paying their health insurance premiums. When enrolling in a qualified health plan through an Exchange, eligible individuals can choose to have some or all of the PTC paid in advance to their insurance company as payment of their monthly premium — the Advance Premium Tax Credit (APTC) — or can wait to claim all of the PTC on their tax return.

The Exchanges have sole responsibility for determining if an individual is eligible to purchase health insurance through an Exchange as well as determining the amount of the APTC they are eligible to receive. The Exchanges use a combination of Federal and State data sources to determine eligibility.

All individuals for whom APTC payments were made to an insurer must file a tax return to reconcile the APTC with the actual PTC they are entitled to receive based on the income and family size reported on their tax return. This reconciliation is necessary as the Exchange’s computation of the APTC is based on estimates of an individual’s anticipated income and family size for the upcoming calendar year. The actual amount of the PTC that taxpayers are entitled to receive is based on their actual income and family size reported on their annual tax return, which can be different from the estimates used by the Exchange to determine the allowable APTC.

Taxpayers who are entitled to more PTC than they got in advance receive the additional credit as a refund on their tax return. Those who received more PTC in advanced payments than they were entitled to must repay the excess, subject to certain limits, when filing their tax return. For those individuals who are assessed additional tax resulting from an overpayment, the ACA limits the amount of tax that individuals with income between 100% and 400% of the Federal Poverty Line (FPL) will have to repay. However, individuals whose actual income exceeds 400% of the FPL are not eligible to receive the PTC and are required to repay the full amount of any APTC they received.

Beginning in January 2015, taxpayers who purchased insurance through an Exchange are required to include Form 8962, Premium Tax Credit (PTC), with their tax return to claim the PTC and reconcile any APTC payments that were made to an insurer on their behalf.

2015 filing season data on the PTC and APTC. IRS Commissioner Koskinen reported that:

… Of those taxpayers who claimed the PTC, through June 25th (the latest date for which information was available), 97% also reported an APTC.
…4.8 million taxpayers need to file a return to claim PTC or reconcile APTC. So far, approximately 3.2 million taxpayers have filed Form 8962, 3 million of whom reported an APTC. These taxpayers reported a total of approximately $10 billion in APTC of the approximately $15.5 billion the Marketplaces paid out in 2014.
…About 2.7 million taxpayers claimed approximately $9 billion in PTC, reporting an average credit of $3,400. About 40% claimed less than $2,000, 40% claimed $2,000 to $5,000, and 20% claimed $5,000 or more.
…Among taxpayers who claimed PTC or reconciled APTC, approximately 1.3 million, or about 40%, claimed a net PTC (i.e., PTC exceeded the APTC paid during the year). By contrast, approximately 1.6 million, or 50%, of taxpayers who claimed PTC or reported APTC reported excess APTC (i.e. APTC paid during the year exceeded PTC). The average amount repaid was about $800, for a total of $1.3 billion in excess APTC reported as repaid. About 65% of taxpayers with excess APTC still reported a refund.
…For those who received more APTC than the PTC they were entitled to claim, the statutory repayment caps affected only approximately 400,000 taxpayers or about 25% of those that reported excess APTC. IRS estimates that to date, approximately $345 million in APTC repayments were above the statutory cap.
…Only 300,000 or 10% of taxpayers received the correct amount of APTC during the year and did not need to make any adjustments at tax time or did not claim any PTC or APTC on their final return.
…Approximately 710,000 of the taxpayers with APTC have not yet filed a tax return and have not filed an extension, as required. IRS is sending a letter to these taxpayers to remind them of their obligation to file a tax return and is urging them to file an electronic tax return to reconcile their ATPC within 30 days. Under Department of Health and Human Services (HHS) regs, taxpayers must meet this filing obligation to maintain their eligibility for APTC to help pay for Marketplace coverage in 2016.

IRS Commissioner Koskinen also noted that, based on preliminary analysis, some 760,000 taxpayers with APTC filed a tax return but did not attach Form 8962 to reconcile those payments, as required. IRS is corresponding with these taxpayers as appropriate and asking them to file a Form 8962.

Background on individual shared responsibility payment. Under the individual shared responsibility provisions, individuals must (1) have qualifying minimum essential health insurance coverage for each month of the year, (2) qualify for an exemption from the requirement to have minimal essential coverage, or (3) make an individual shared responsibility payment.

2015 filing season data on the individual shared responsibility payment. IRS Commissioner Koskinen reported these preliminary figures for the 2015 filing season:

1. The vast majority of taxpayers had qualifying health insurance coverage, either from the workplace, Medicare or Medicaid. Approximately 76% of taxpayers (currently approximately 102 million tax returns) just checked a box on their 2014 tax return to indicate they had qualifying coverage all year. Another approximately 7 million dependents, who did not have to report on their coverage, filed a return and did not have to do anything new on their returns, for a total of 81% of returns.
2. About 12 million taxpayers claimed a health care coverage exemption.
3. Around 7.5 million taxpayers reported a total of $1.5 billion in individual shared responsibility payments. About 40% of these payments were $100 or less, and about 95% were $500 or less. The average payment was around $200. The vast majority, 85%, of taxpayers reporting a shared responsibility payment still reported a refund.

Of the taxpayers who reported an individual shared responsibility payment, an estimated 300,000 low-income taxpayers reported a payment when they should have claimed a health care coverage exemption, Koskinen said. IRS will write these taxpayers informing them about available exemptions and note that they may benefit from filing an amended return.

A footnote in Koskinen’s letter reveals that approximately 5.1 million non-dependent taxpayers did not check the box to indicate they had qualifying health insurance coverage, claim a health care coverage exemption, or report an individual shared responsibility payment. The letter said IRS was analyzing these cases to determine their status.

References: For the premium tax credit, see FTC 2d/FIN ¶  A-4241; United States Tax Reporter ¶  36B4; FTC 2d/FIN ¶  138,700; TG ¶  1381. For the individual shared responsibility payment, see FTC 2d/FIN ¶  V-3901; United States Tax Reporter ¶  50,00A4.1; FTC 2d/FIN ¶  867,301; TG ¶  1811.

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