The Internal Revenue Service has completed work on a collection of Affordable Care Act regulations that could make life harder for low-income people who fib about their income potential to qualify for tax credits.
Other sections of the new final rule, Premium Tax Credit Regulation VI, could affect employers that give cash to employees who opt out of coverage; workers at an employer that starts its plan year on a date other than Jan. 1; and people and employers with other kinds of complicated ACA premium tax credit situations.
The IRS, an arm of the Treasury Department, is preparing to publish the regulation in the Federal Register Dec. 19. The Federal Register is a U.S. government publication. The government uses the Federal Register to put regulations into effect.
The rules are set to apply for tax years starting after Dec. 31, 2016.
IRS officials based the new final regulation on draft regulations they published in the Federal Register in July.
Members of Congress and regulators developed the ACA premium tax credit system to help people pay for the health insurance policies sold by the ACA public exchange system.
Exchanges can offer the tax credit subsidies to people who earn from 100 percent to 400 percent of the federal poverty level. In most of the country, individuals can qualify in 2017 if they earn from $11,880 to $47,550.
The tax credit money goes to the health insurer that provides the exchange plan coverage.
Exchange plan buyers can choose to get the tax credit help after the end of the calendar year in which they use the coverage, when they file their income taxes for that year. Exchange plan users can also choose to get the tax credit in the form of an “advance premium tax credit,” while the coverage year is still under way, to reduce the amount of cash they have to pay every month to the health insurer.
More than three-quarters of exchange plan users have been getting the tax credit help in advance.
The IRS already has a regulation to deal with high-income people who lie about their income to qualify for advance premium tax credit help.
The agency wanted to add a similar regulation for low-income people to keep them from using unrealistically high income forecasts to qualify for tax credit help.
In the new final regulation, the IRS says it will take ACA premium tax credit help away from an individual who “with intentional or reckless disregard for the facts, provides incorrect information to an exchange for the year of coverage.”
“A reckless disregard of the facts occurs if the taxpayer makes little or no effort to determine whether the information provided to the exchange is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct a reasonable person would observe,” according to the regulation text. “A disregard of the facts is intentional if the taxpayer knows the information provided to the exchange is inaccurate.”
IRS officials say in the introduction to the regulation that they have used the “reckless disregard” standard in other tax regulations.
The IRS means for the reckless disregard standard to apply the same way to ACA premium tax credit matters, officials say.
Some commenters questioned how the IRS would apply the standard to low-income people applying for premium tax credit help.