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7 must-know new ACA tax administration facts

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The Taxpayer Advocate Service has revealed a little more information about how the Internal Revenue Service is handling Affordable Care Act tax provision administration, in a new report on IRS efforts to meet its objectives for federal fiscal year 2017.

Federal fiscal year 2017 starts Oct. 1.

Congress set up the advocate service in an effort to create an independent organization, inside the IRS, that can help taxpayers resolve disputes with the IRS.

The service’s report covers a wide range of issues of concern to taxpayers, including many taxpayers’ anger about IRS efforts to push them to do business online.

The leader of the service, Nina Olson, the National Taxpayer Advocate, said, for example, that the IRS seems to be ignoring the “digital divide” in its official planning framework.

One ACA-related section in the report focuses on IRS efforts to implement the ACA employer shared responsibility provisions.

Related: ACA employer mandate may start two-step fights

Another section focuses on what the advocate saw as the IRS administered the ACA health insurance premium tax credit subsidy program. Taxpayers began using 1095-A coverage notices from exchanges to fill out their first wave of 8962 premium tax credit reporting forms for their 2014 returns, which they filed in early 2015. Earlier this year, they sent the IRS 8962 premium tax credit reporting forms for 2015. 

Related: How draft ACA tax regulations could affect your clients

For a look at what Olson’s office saw when it looked at the second year of operation of the premium tax credit program, based both on the new report and the report for the 2014 benefit year, read on: 

Form 8962

(Image: IRS)

1. Many more people filed returns with the 8962 premium tax credit form.

The number of 8962 forms submitted increased to 4.8 million for 2015, up 85 percent, from 2.6 million, for 2014.

Related: Tax preparers return to ACA fog


Increases in the full cost of ACA exchange plan coverage did not seem to lead to much change in the average of subsidy help taxpayers reported receiving in 2015. (Photo: Thinkstock)

2. The average premium tax credit amount per return stayed about the same.

The average premium tax credit amount reported fell, very slightly, to $2,987 for 2015, from $3,000 for 2014.

Related: HHS analysts: Average plan premium rose 8.8 percent

Piggy bank under pressure

Typical exchange plan premium subsidy users may not be able to wait until the spring after the end of the benefit year to get their premium subsidies. (Photo: Thinkstock)

3. The percentage of people who received the tax credit in the form of an advanced tax credit increased slightly.

The moderate-income consumers who qualify to use the tax credits to pay for exchange plan coverage can choose whether to get the tax credit in an advanced form, as the benefit year is under way, which means that they must guess what their income will be during the benefit year and go through a complicated reconciliation process when they file their tax returns for that year.

Consumers can also make their taxes simpler, by waiting until they file their tax returns for a benefit year to get their subsidy help for that year.

The IRS has found that most taxpayers choose to get the help the faster, more complicated way.

The percentage who received the tax credit subsidy in the form of an advanced premium tax credit was 93 percent in 2014.

For 2015, 94 percent of the taxpayers who reported receiving the subsidy chose the advance payment option. 

Related: IRS: 2014 ACA exchange users received $30 billion in subsidies 

WTC Oculus

The percentage of taxpayers who told the IRS they had enough health coverage to escape ACA mandate penalties increased. (Photo: Allison Bell/LHP)

4. The number of people who said they had coverage increased, and the percentage who said they owed a penalty for lacking minimum essential coverage fell.

 The number of individual returns that claimed what the government classifies as a responsible amount of coverage increased to 103.6 million for 2015, from 94 million for 2014.

The number of returns showing taxpayers owed shared responsibility penalty amounts fell 15 percent, to 5.6 million for 2015, from 6.6 million for 2014.

The number of returns claiming exemptions from the ACA individual coverage mandate held steady at about 11 million.

Related: ACA coverage cops are calling your group clients


ACA drafters have phased in a series of increases in individual mandate penalty amounts. (Image: Thinkstock)

5. For taxpayers who admitted to lacking enough minimum essential coverage for enough of the year to escape shared responsibility penalties, the average amount of penalties owed increased sharply.

ACA drafters included a formula that phases in the individual shared responsibility penalties over several years.

In part because of the change in the penalty formula, the average penalty owed increased to $442 per 2015 return, from $190 per 2014 return. 

Related: 3 IRS PPACA World revelations 

Angry man

The Taxpayer Advocate Service says its ACA premium tax credit caseload has tripled. (Photo: Thinkstock)

6. The number of formal advocacy cases involving ACA premium tax credit problems increased much faster than the number of people who reported using premium tax credits.

The number of returns that included 8962 premium tax credit forms increased just 85 percent, but the number of premium tax credit problem cases in the Taxpayer Advocate Service system increased 290 percent between the eight-month period ending in May 2015 and the eight-month period ending in May this year. 

The service handled 8,887 premium tax credit problem cases during the first eight months of fiscal year 2016, and those cases accounted for 96 percent of the service’s ACA cases.

Related: 3 ways the 8962 PPACA tax form update could drive your clients crazier 


Some taxpayers who have interacted with the public exchange system may feel as if they’ve entered an alternative insurance universe. (Photo: Thinkstock)

7. Some of the premium tax credit cases have been very, very strange.

Some taxpayers brought ACA problems on their own heads by using the simple 1040-EZ tax form to file their returns, even though the IRS does not let taxpayers who receive premium tax credits use the 1040-EZ form.

But the advocate service said some taxpayers received 1095-A exchange coverage and tax credit notices even though they had not used exchange plan coverage.

Some taxpayers received 1095-A coverage forms from exchanges even though “they contacted the Marketplace [] to inquire about enrollment, but never actually enrolled,” the service says.


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