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Watchdog finds $447 million IRS PPACA tax credit math error

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Because of a programming error, the Internal Revenue Service (IRS) had trouble tracking how much the government was really supposed to have spent on health insurance premium tax credits, according to an IRS watchdog agency.

The IRS sent $17.3 billion in advance premium tax credit (APTC) subsidies to Patient Protection and Affordable Care Act (PPACA) exchange plan issuers from October 1, 2014, through June 30, 2015, according to officials at the Treasury Inspector General for Tax Administration (TIGTA). The IRS based the subsidy amounts on consumers’ estimates of how much they might earn in the future.

When the IRS looked at consumers’ tax returns, to see how much the consumers actually earned during the subsidy year, it originally thought the official APTC outlay total should have been $3.065 billion lower than the amount paid out, or about $14.2 billion, TIGTA officials say in a new report.

When TIGTA auditors found the programming error, it cut the outlay adjustment by $447 million, to $2.618 billion. The reduction in the adjustment increased the official net tax credit outlay to $14.642 billion.

The correction was equal to 15 percent of the outlay adjustment and 3.1 percent of the net tax credit outlay.

The error was the result of problems with how an IRS processing system handled calculations for taxpayers who used APTC money along with other federal tax credit programs. 

“The accounting errors identified are primarily attributable to the lack of comprehensive testing,” TIGTA officials say. “Although the IRS [chief financial officer] informed us that some limited testing of the programming was performed, this testing was insufficient to ensure that the results produced were correct for various accounting scenarios, such as taxpayers claiming multiple tax credits.”

PPACA exchange manager delays in getting the IRS reports that that agency could use to check the APTC outlay numbers probably slowed efforts to detect the programming error, TIGTA officials say.

See also: GAO: Many PPACA exchanges missed a tax credit reporting deadline 

PPACA drafters created the APTC system to give consumers a way to reduce the amount they pay out of pocket for PPACA exchange plan coverage while the benefit year is still under way.

When consumers apply for exchange plan coverage, they tell an exchange how much they expect to earn in the coming year. Then, the exchange uses the consumer’s income prediction to calculate how much APTC subsidy money the consumer can use to cut out-of-pocket premium bills.

Later, after the benefit year is over, the consumer is supposed to pay any excess APTC money back to the IRS, or get cash back from the IRS if the APTC amount was too low.

The TIGTA totals imply that consumers have received an average of about 18 percent more APTC money while the benefit year is under way than they would have gotten if the APTC amounts were based on their actual income. 

See also:

Last-minute filers narrow PPACA tax credit reporting gap

What agents have to know about IRS PPACA problems


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