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IRS Provides Penalty Relief for Excess Advance Premium Tax Credit Payments

IRS Notice 2015-9 (Jan. 26, 2015)

Visit the Health Care Reform Community on Checkpoint to join the discussion on this development (for Checkpoint subscribers to EBIA’s Health Care Reform manual).

Some taxpayers will owe money on their 2014 tax returns because the advance premium tax credits they received for coverage purchased on the Exchange exceeded the premium tax credits they were allowed to claim for 2014. (For information on the forms for reporting premium tax credits, see our article.) The IRS has now announced that it will provide limited relief (for 2014 only) from certain related penalties. Note that advance credit payments are based on the Exchange’s estimate of the premium tax credit that a taxpayer would be able to take.

Under IRS Notice 2015-9, penalties will not be assessed for late payment of a balance due (under Code § 6651(a)(2) ) for taxpayers who (1) are otherwise current with their filing and payment obligations, (2) have a balance due for 2014 because of excess advance payments of the premium tax credit, and (3) timely report the amount of the excess advance credit payments on their 2014 tax return. The IRS will also waive the penalty for underpayment of estimated tax (under Code § 6654(a) ) if the taxpayers (1) are otherwise current on their filing and payment obligations, and (2) timely report the amount of the excess advance credit payments on their 2014 tax return. Taxpayers are treated as current with their filing and payment obligations if, as of the date they file their 2014 returns, they have filed (or filed for an extension for) all currently required federal tax returns, and paid (or entered into an appropriate agreement to satisfy) their federal tax liability. The guidance also includes procedures for requesting and claiming the penalty relief.

EBIA Comment: 2014 is the first year that taxpayers will be required to reconcile advance payments of the premium tax credit against the actual credit allowed, and this limited relief will be helpful for those who may not have been prepared for the resulting tax liability. The guidance also notes that underpayments of the individual mandate penalty are not subject to the Code §§ 6651(a)(2) and 6654(a) penalties that this relief addresses. (Starting in 2014, taxpayers who did not maintain minimum essential coverage for each month of their tax year or did not qualify for an exemption from coverage must make a shared responsibility payment.) In a related development, the IRS has also issued Revenue Procedure 2015-15 , which provides the monthly national average premium to be used in determining the maximum individual shared responsibility payments for 2015 (see our article regarding the maximum payments for 2014). For more information, see EBIA’s Health Care Reform manual at Section XXIX (“Shared Responsibility for Individuals (Individual Mandate)”).

Contributing Editors: EBIA Staff.