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IRS guidance: when will amending return to reflect corrected ACA form save taxes?

IRS has updated its Q & A website on how taxpayers who received incorrect 2014 Form 1095-A, Health Insurance Marketplace Statement, should deal with that fact. The update provides guidance on how such taxpayers can determine whether it is likely that they will benefit from filing an amended 2014 income tax return after they receive a corrected Form 1095-A.

Background on the Code Sec. 36B premium tax credit and Form 1095-A. The Affordable Care Act (ACA) created Code Sec. 36B(a) which provided certain taxpayers with 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.

Taxpayers who receive Form 1095-A use it to complete Form 8962, Premium Tax Credit; Form 8962 is used to reconcile advance payments of the premium tax credit and to claim this credit on the recipient’s tax return.

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 .)

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. (See Weekly Alert ¶  30  03/05/2015.)

In a subsequent press release, this relief was extended to apply not only to tax filers who enrolled through the Federally facilitated marketplace, but also to those enrolled through a State-based marketplace. (See Weekly Alert ¶  23  03/26/2015.)

And, the Treasury Department has provided penalty relief to taxpayers who are enrolled in qualifying Marketplace coverage and unable to timely file an accurate tax return by the April 15 deadline. (See ¶ 6.)

IRS helps taxpayers determine if they would benefit from filing amended return. IRS has now added, to the guidance on its website about incorrect Forms 1095-A, information to help taxpayers who filed 2014 returns using information from an incorrect Form 1095-A, determine if they would benefit from filing an amended return with corrected 1095-A data.

IRS says that taxpayers in the above-described situation are likely to receive a larger refund or owe a smaller tax payment using the corrected Form 1095-A, and thus would benefit from amending, if the two Forms 1095-A generally show the same information but any one of the five scenarios below is true of the corrected form:

The second lowest cost Silver plan premium is larger. The monthly premium amounts of the second lowest cost Silver plan, shown in Part III, column B, lines 21-32, are greater on the corrected form than on the original form.

Illustration 1 If the original Form 1095-A shows a premium of $200 on these lines, and the corrected Form 1095-A shows a premium of $300 on these lines, then the taxpayer is likely to benefit from filing an amended return.

The monthly premium amounts are larger. The monthly premium amounts of the plan in which the taxpayer enrolled, shown in Part III, column A, lines 21-32, are greater on the corrected form than on the original form.

Illustration 2 If the original Form 1095-A shows a premium of $180 on these lines, and the corrected Form 1095-A shows a premium of $250 on these lines, then the taxpayer is likely to benefit from filing an amended return.

The advance payment of the premium tax credit amounts are lower. The monthly amounts of advance payment of the premium tax credit (APTC), shown in Part III, column C, lines 21-32, are smaller on the corrected form than on the original form.

Illustration 3 If the original Form 1095-A shows APTC of $60 on these lines, and the corrected Form 1095-A shows APTC of $50 on these lines, then the taxpayer is likely to benefit from filing an amended return.

There are more months of coverage listed and the taxpayer’s situation meets all the following conditions:

  • The corrected form shows more months of coverage than the original form. This means that the corrected form shows positive values in more of the rows under Part III than the original form.
  • Illustration4 The corrected form shows positive values in lines 21-32 (indicating coverage lasting from January-December), while the original form shows positive values only on lines 21-26 (indicating coverage lasting from January-June).
  • The values are the same on the corrected form for the months that the original form showed coverage.
  • Illustration5 The corrected form shows positive values in lines 21-32 (indicating coverage lasting from January-December), while the original form shows positive values only on lines 21-26 (indicating coverage lasting from January-June).
  • Illustration6 If the original form showed coverage on lines 21-26, the two forms show the same values on those lines.
  • On the original tax return, the taxpayer claimed a net premium tax credit, meaning he entered a value on line 26 of the Form 8962 he filed. This would be the case if either his total premium tax credit (line 24 of the Form 8962) exceeds the APTC he received (line 25 of the Form 8962), or because he entered a value for total premium tax credit on line 24 and did not receive APTC (line 25).

There are fewer months of coverage listed and the taxpayer’s situation meets all the following conditions:

  • The corrected form shows fewer months of coverage than the original form. This means that the corrected form shows positive values in fewer of the rows under Part III than the original form.
  • Illustration7 The original form shows positive values on lines 21-32 (indicating coverage lasting from January-December), while the corrected form shows positive values on lines 21-26 (indicating coverage lasting only from January-June).
  • The values are the same on the original form for the months that the corrected form shows coverage.
  • Illustration8 If the corrected form shows coverage on lines 21-26, the two forms show the same values on those lines.
  • On the taxpayer’s original tax return, he reported owing a repayment of excess APTC, meaning he entered a value on line 29 of the Form 8962 he filed. This would be the case if the APTC he received (line 25 of the Form 8962) exceeded his total premium tax credit (line 24 of the Form 8962).

For taxpayers for whom there were multiple differences between the original and the corrected forms, IRS suggests consulting with a tax preparer.

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