Internal Revenue Service staffers are spending much of their time and energy preparing to implement Patient Protection and Affordable Care Act provisions that are set to take effect in federal fiscal year 2012.

IRS Commissioner Douglas Shulman talked about PPACA implementation efforts today at a hearing on the fiscal year 2012 IRS budget request organized by the House Appropriations Committee Financial Services and General Government Subcommittee.

Federal fiscal year 2012 starts Oct. 1.

PPACA is a major component of the federal Affordable Care Act package.

THE 2012 BUDGET PROPOSAL

The Obama administration is asking for about $13 billion in funding for the IRS for fiscal year 2012.

The overall total includes $168 million in cuts related to efforts to make the IRS more efficient and $839 million in extra spending intended to improve taxpayer service, strengthen enforcement, migrate applications to a new account database and implement legislation, Shulman said, according to a written version of his testimony posted on the subcommittee website.

The budget includes funding for:

  • Upgrading the IRS call center and infrastructure to handle taxpayer calls for help with understanding the Affordable Care Act, Shulman said.
  • Preparing to handle PPACA-related employment tax and excise tax audits.
  • Updating IRS tax credit technology tools and enforcement staffing, to prepare for the introduction of a health insurance purchase subsidy program that is supposed to be administered through a new tax credit system starting in 2014. ($260 million; and the equivalent of 834 full-time employees)
  • Preparation for many new PPACA-related statutory reporting requirements, such as tax credit reporting requirements, health insurance exchange distribution system reporting requirements, and health insurer reporting requirements. ($58 million and the equivalent of 187 full-time employees)
  • Implementing the “individual coverage requirement and employer responsibility payments” associated with the PPACA individual health coverage ownership mandate and the penalty that will be imposed on employers with 50 or more full-time employees that fail to provide group health coverage. ($62 million and the equivalent of 65 full-time employees)

Shulman noted that the IRS already been has responsible for implementing health insurance programs created before PPACA was enacted.

The IRS has been the Health Coverage Tax Credit (HCTC) administrator since

the signing of the Trade Adjustment Assistance Reform Act of 2002, Shulman said.

The HCTC tax credit program helps workers hurt by trade agreements pay for health coverage.

The IRS has already been implementing some quick-starting PPACA provisions, such as a small employer health insurance purchase tax credit, Shulman added.

THE INDIVIDUAL HEALTH INSURANCE PURCHASE TAX CREDIT

Implementation of the individual health insurance purchase subsidy tax credit may go reasonably smoothly, Shulman said.

The requirement is not set to take effect until 2014. It is on track to appear on the 2014 tax forms that will be filed in the spring of 2015.

The 2014 forms “will provide instructions on how individuals can determine if they met the coverage requirement, and if not, how to compute the payment and include it in that year’s tax liability,” Shulman said. “We also plan to work closely with the tax return preparation industry to ensure that the professionals who advise taxpayers are fully informed about this provision. Today, approximately 60% of taxpayers use a return preparer; another 25% use software to prepare their own returns. “

For the minority who get the credit computations wrong, the IRS will follow up with the taxpayer, Shulman said.