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3 IRS PPACA World revelations

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The Internal Revenue Service (IRS) is starting to estimate how well public exchange plan users are following the new health insurance premium tax credit reporting rules.

Early numbers suggest that the answer is, “Not very well.”

John Koskinen, the IRS commissioner, talks about consumers’ Patient Protection and Affordable Care Act (PPACA) premium tax credit compliance in a letter sent to members of Congress and published on the Web.

Drafters of PPACA tried to help poor and moderate-income workers pay for health coverage using a tax credit system based on the older Earned Income Tax Credit income subsidy program. Consumers who buy qualified health plan (QHP) coverage through a PPACA exchange can choose whether to get the tax credit after the end of the tax year, when they file their income taxes, or during the tax year.

See also: IRS to GOP: We won’t be enforcers of health insurance mandate

The IRS pays advance premium tax credit (APTC) money directly to the health insurers that issue the QHP coverage. Consumers who get APTC money can use the money to reduce the amount of cash they have to pay out of pocket for health coverage while the year is still under way.

Consumers who give an exchange high income estimates when they sign up for tax credits may end up getting less APTC help than they should. Those consumers can get money back from the IRS when they file their income taxes, and report on their APTC use on IRS Form 8962.

Consumers who, intentionally or unintentionally, lowball their income when they sign up for tax credits and get too much APTC help during the tax year are supposed to pay the extra money back to the IRS at the end of the tax year.

Some members of Congress wondered, when the Obama administration was setting up PPACA tax credit administration systems, how well the government would be able to enforce APTC payback compliance.

See also: PPACA Stars at IRS Budget Hearing

H&R Block Inc. (NYSE:HRB) reported in June that it was seeing signs of poor compliance with the APTC tax filing requirements.

See also: H&R Block sees large PPACA liar market

Officials at the U.S. Treasury Department, the parent of the IRS, noted that the IRS is providing information about PPACA-related 2014 tax return processing based on early, incomplete data, and much more quickly than it would normally provide tax filing data, because of strong congressional interest in PPACA tax issues.

Koskinen himself lets his numbers speak for themselves. He does not come to any conclusions about APTC users’ compliance levels in his letter.

For a look at what the numbers say, read on.

Form 8962

1. Consumers’ compliance with exchange tax subsidy reporting requirements may be low.

The IRS estimates 4.5 million taxpayers received APTC money in 2014.

Of those, 2.7 million, or about 60 percent, had filed 8962 forms processed by the end of May, and another 360,000 taxpayers, or 8 percent of the recipients, had filed requests for extensions. 

See also: New PPACA tax form drafts have a language all their own

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2. About half of the tax credit users who did file 8962 forms owed money.

About 40 percent of the 2.7 million APTC users who have actually filed their 8962 forms said the IRS owed them money. They asked the IRS to get an average of about $600 in additional tax credit money. About 20 percent said the IRS owed them more than $1,000 in additional tax credit money.

About 50 percent, or 1.6 million, said that the IRS had given them too much tax credit money. They repaid an average of about $800, and about 25 percent repaid more than $1,000.

See also: 3 IRS PPACA compliance weaknesses 

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3. About 16 percent of the tax credit users haven’t filed any kind of tax form, or request for an extension.

About 7.5 million taxpayers have admitted to not having the minimum required coverage for 2014 and paid about $1.5 billion in penalties.

About 760,000 consumers who used 2014 APTC money have filed tax returns for 2014 without including 8962 forms, according to IRS estimates.

Another 710,000 APTC users have not filed any kind of tax return or request for extension.

“We are urging these taxpayers to file an electronic tax return to reconcile their APTC within 30 days,” Koskinen says. “We will follow up with these taxpayers as appropriate.”

 See also: IRS is PPACA enforcer, lawyer says

Image: National Park Service photo