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IRS faces PPACA service squeeze

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Officials at the Treasury Inspector General for Tax Administration (TIGTA) have shed some more light on the workings of the Patient Protection and Affordable Care Act (PPACA) commercial health insurance provisions.

Officials at the agency, which keeps tabs on the operations of the Internal Revenue Service (IRS), have included early data on IRS processing of PPACA-related tax return information, and PPACA-related taxpayer service efforts, in a report on the 2015 filing season.

Nina Olson, the national taxpayer advocate, gave more information on IRS handling of taxpayers’ questions about PPACA in written testimony presented April 15 at a hearing organized by the House Oversight and Government Reform government operations subcommittee.

TIGTA officials found that, as of March 6, the IRS had received a total of 66.7 million tax returns for the 2014 tax year, or 0.7 percent fewer than it had received at the same point in 2014, for the 2013 tax year.

The IRS had issued a total of 54 million refunds for 2014, with an average of value of $2,988 per refund.

Most of the individual and family filers at least had to check a box indicating whether they had “minimum essential coverage” (MEC) throughout 2014, and could avoid having to pay the “shared responsibility” penalty that PPACA imposes on many people who fail to meet requirements.

Consumers who used PPACA premium tax credit money to pay for PPACA exchange plan coverage in advance had to report on their exchange coverage, use of premium tax credits, and income, to reconcile their actual income and premium tax credit eligibility with the “advance premium tax credit” (APTC) help they received based on income estimates made before the start of the tax year.

See also: 3 PPACA premium tax credit program weak points

For a look at what TIGTA officials and Olson found about how the IRS has been handling PPACA tax matters, read on.

Dollar bill

1. Some taxpayers who failed to own MEC throughout 2014 are taking responsibility for paying individual shared responsibility penalties.

Since President Obama signed PPACA in 2010, the law has called for most individuals who failed to own MEC throughout most of 2014 to pay a penalty amounting to about 1 percent of income when they filed their 2014 income taxes.

PPACA also created an elaborate system of exemptions individuals could use to avoid having to pay the MEC penalty.

See also: Highways to PPACA tax penalty freedom

One question was whether many taxpayers would pay the MEC penalty, or whether they would simply not pay the penalty and see if the IRS would bother to audit them.

TIGTA included MEC information for 52.7 million returns in the early 2015 filing season report.

TIGTA officials found that at least 52.7 million returns contained information related to MEC and shared responsibility payments. Of those, 42.8 million, or 81 percent, said they had met the PPACA MEC requirement throughout the year.

Another 6.2 million filers, or 12 percent, said they had exemptions from the MEC requirement.

But 3.7 million filers, or 7 percent, said they owed MEC penalties. They paid an average of about $177 in MEC penalties each.

The TIGTA numbers appear to be in the neighborhood of MEC penalty numbers H&R Block (NYSE:HRB) released in early February. The tax preparation firm reported then that customers who violated the MEC rules were paying an average of about $172 in penalties each. 

Numbers

2. Exchange plan tax credit users are about as likely to get extra money as they are to have to send extra money to the IRS.

TIGTA 737,148 households, or about 1.1 percent of filers, had filed returns including information about APTC subsidy money already received, or asking to get premium tax credit money with their regular refund checks.

  • 49 percent of the APTC users overestimated their eligibility for tax credits. They paid an average of $439 in extra taxes to the government (or had that amount deducted from their refunds). PPACA rules let them waive an average of $403 in payments each.

  • 39 percent of the APTC users had underestimated their eligibility for tax credits. The government gave them an average of $345 in additional tax credit money.

In February, H&R Block found that about half of its early filers who had used the APTC subsidy owed the government money, and that the average amount owed was $539.

Call center

3. The IRS gave consumers calling about PPACA a much better level of service than it gave consumers calling about other matters.

Olson testified that, in part because the IRS was expecting to get far more PPACA-related calls early in the tax season than it actually received, service levels at the IRS PPACA telephone hotline were much better than at the regular service hotline.

The PPACA hotline had a level of service rating of 68 percent through the week ending March 28. The regular accounts management lines had a level of service of just 37 percent, which was even lower than the 40 percent level of service the IRS had expected to provide.

Informal analysis of Web-based tax forum posts showed that the percentage of PPACA-related questions posted there was also relatively light. 

See also: PPACA tax misery index edges lower

One worry is that relatively light PPACA service loads may reflect a high level of consumer confusion and disengagement, rather a high level of consumer understanding of the tax filing process.