Implementing Health Reform. The National Taxpayer Advocate Service (TAS) has recently released volume 1 of its Objectives Report to Congress for fiscal year 2017. The TAS reports that, overall, "The IRS has done a commendable job of implementing the various stages of the Patient Protection and Affordable Care Act." In addition to providing data on Affordable Care Act (ACA) tax filings for the 2015 filing year, however, the report also contains information regarding ongoing issues with Internal Revenue Service (IRS) efforts to implement the ACA and recommendations to Congress regarding ACA tax issues that the TAS has identified.
As of April 28, 2016, 4.8 million tax year 2015 returns had been filed with form 8962, which is necessary to claim a premium tax credit (PTC). Three million were prepared by a paid or volunteer tax preparer; the remainder were self-filed. About 4.5 million of these (94 percent) reported the receipt of $15.8 billion in advance PTC; the rest claimed PTCs when they filed their return. The average PTC amount per return was $2,987.
Taxpayers actually claimed entitlement to $14.3 billion in premium tax credits, suggesting that overpayments of APTC equaled at least $1.5 billion. Because of the approximately 300,000 taxpayers who claimed their tax credits at the time of filing rather than in advance, the total amount of overpayments was likely somewhat larger than this amount.
Taxpayers filed 103.6 million returns claiming minimum essential coverage. About 5.6 million taxpayers filed returns recognizing responsibility for an individual shared responsibility payment, with an average payment of $442. Of these returns, 3.6 million were prepared by a paid or volunteer tax preparer. Eleven million forms claimed an exemption from having health coverage; of these, 3.2 million claimed an exemption because their household or gross income was below the filing threshold, while7.8 million claimed another exemption.
The TAS reports a dramatic increase in premium tax credit cases, where some sort of problem or issue occurred, for FY 2016 over FY 2015, with 8,887 cases as of the end of May 2016. The primary individual tax issues that it reports dealing with included situations where:
- Taxpayers incorrectly received 1095-A forms, which are supposed to report receipt of advance PTC, simply because they contacted the marketplace to enquire about enrollment, even though they actually did not enroll;
- The IRS received incorrect advance PTC data from marketplaces for taxpayers that in fact never received marketplace coverage;
- The IRS received incorrect advance PTC data from marketplaces for taxpayers who in fact enrolled in marketplace coverage but did not receive advance PTC; or
- Taxpayers received advance PTC but filed a 1040EZ return, which does not allow the filing of the 8962 form, and thus were not able to reconcile PTC.
About 96 percent of the 9250 ACA cases reviewed by the TAS dealt with PTC.
The IRS reviews all individual tax returns to check if the taxpayer received advance PTC. When it identifies a taxpayer who received advance PTC but did not file a form 8962 to reconcile PTC, it holds the return in an Error Resolution/Rejected Return unit and sends the taxpayer a Letter 12C informing him or her that the filing is incomplete. If the taxpayer has incorrectly filed a 1040EZ, the IRS can convert the 1040EZ to a 1040 if the taxpayer subsequently files a 1095-A and 8962 reconciliation form, but the process can be lengthy, holding up the finalization for the return.
The TAS has identified several problems through this process:
- Continuing issues with taxpayers not updating their marketplace eligibility information for changed circumstances, resulting in overpayments.
- Delays in processing refunds because of taxpayers not filing 8962 forms.
- State marketplaces being permitted 90 days after the enrollment period closes to finalize tax information reports. This results in confusion if a state marketplace updates the information that it has reported to the IRS after a letter 12C has been sent to a taxpayer because the IRS has incomplete or incorrect data.
- Unscrupulous tax preparers continuing to tell taxpayers that they have to pay the individual responsibility payment directly to the preparer and then pocketing the payment rather than sending it on to the IRS. They seem in particular to be preying on undocumented immigrants (including Deferred Action for Children Arrival immigrants) who do not in fact owe the fee.
- Overpayments of the individual responsibility fee. This was apparently a widespread problem for filing year 2014, but was identified too late in the year to permit a systemic fix. The IRS has sent a letter 5600-C to individuals who overpaid for 2014 instructing them how to file an amended return. It is also putting systemic corrections in place to catch situations where an individual who is eligible for an exemption because income is below the filing limit nonetheless pays the fee.
- The need for relief for people who receive lump sum Social Security Disability Insurance payments that drive their income above 400 percent of the federal poverty limit, requiring them to pay back all advance PTC received. The law allows individuals to prorate lump sum SSDI payments over the period covered by the payment for income tax purposes, but this option is not available for computing modified adjusted gross income, which is used to calculate PTC eligibility. The report urges the IRS to correct this inequity administratively if possible or Congress to fix it if administrative action is not possible.
Employer Issues
The TAS report also covers ACA issues affecting employers. It notes that there is no "reasonable cause" exception for violations of the employer shared responsibility payment (ESRP) provisions of the ACA. The TAS urges the IRS to respond directly with employers as they attempt to determine whether or not they offer minimum essential coverage (MEC) and whether particular employers are full-time employees who must be offered MEC to avoid the ESRP. The IRS has designated their Small Business/Self Employment division to work with employers on ESRP issues.
The IRS extended the due dates for employers to furnish coverage information for 2015 to employees from January 31 to March 31, 2016, and to the IRS from February 29 to May 31, 2016. Thus the IRS has not yet reported how many informational returns have been fielded by employees.
The TAS report expresses concern about the IRS taking action based on incorrect or incomplete data reporting. TAS recommends again, as it did last year, that Congress amend the tax law to allow the IRS to use the taxpayer information number matching program to verify information reported by employers and insurers on health coverage. Currently the program can only be used to verify information returns that report income subject to back-up withholding and thus can't be used to verify employer or insurer information reports (1095-Bs and 1095-Cs).
The report also expresses concern about the complexity of IRS guidance regarding the application of the $100 per-day per-employee excise tax imposed on employers whose group health plans violate ACA requirements pertaining to employer payment plans and health reimbursement accounts. In particular, it notes IRS guidance delaying until plan years beginning in 2017 the imposition of the tax on colleges and universities that have used these accounts in the past for providing coverage to student employees. The report urges the IRS to continue to work with schools affected by this requirement.
In Other ACA Regulatory News …
In other developments, the Department of Health and Human Services (HHS) released a question and answer document on July 8, clarifying applicability dates for the 2017 summary of benefits and coverage (SBC). Health plans or insurers that have annual open enrollment periods must use the 2017 SBC for open enrollment periods beginning on or after April 1, 2017. This means that qualified health plans will begin using it for the November 1, 2017 to January 31, 2018 ACA marketplace open enrollment period. Plans and insurers without an open enrollment period should start using the 2017 SBC for the first year for the first plan or policy year beginning on or after April 1, 2017.
SBCs for 2017 should be submitted to HHS in direct enforcement states at least 60 days prior to use for form review. In other states, 2017 forms should be submitted in accordance with state form review guidelines. Until further notice, insurers should continue to use the coverage calculator approved for plan year 2016 for calculating data used for the coverage examples "having a baby" and "managing diabetes" and enter a default "$0" for each field under the new "treatment of a simple fracture" example.
HHS also announced that the 2017 Assister Certification Training is available beginning on July 11, 2016. The training is hosted by the Marketplace Learning Management System (MLMS), the online web-based training platform for assisters assisting consumers in Federally Facilitated Marketplaces (FFMs), including State Partnership Marketplaces (SPMs), and State-based Marketplaces using the Federal platform (SBM-FPs). The training is available for new users and for existing users.
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