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IRS focuses on low-income liars in new ACA premium tax credit regs

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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.

Related: How draft ACA tax regulations could affect your clients

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.

“The IRS must make the initial showing of facts demonstrating intentional or reckless behavior,” IRS officials say. “Exchanges have no role in enforcing or implementing this standard.”

In some cases, officials say, getting bad advice from insurance agents or nonprofit exchange helpers might help low-income applicants.

If the applicants give the agents or helpers accurate information about their finances, and the agents or helpers give those exchange users wrong advice about how to calculate their income, those people might still qualify to keep any tax credit help they receive, even if their income turns out to be below 100 percent of the federal poverty level, officials say.

Opt-out cash and complicated families

One section in the new regulation applies to employers that give cash to employees who opt out of the group health plan.

In the draft regulations, IRS officials proposed treating the opt-out cash as part of the full cost of the employer-sponsored coverage if the employees who opt out try to apply for ACA premium tax credit help.

Workers can qualify for premium tax credit help for 2017, even if they have access to group health coverage from an employer, if the workers’ share of the premiums for the cheapest self-only employer coverage exceed 9.69 percent of the workers’ W-2 wages from that employer.

IRS officials argued that, if employers offer opt-out cash, and the employees who opt out seek exchange plan coverage, rather than using a spouse’s coverage or some other type of non-exchange coverage, the full economic value of the cost to the employee equals the employee’s share of the premiums plus the opt-out cash.

In some cases, employers may end up having to pay ACA penalties if their workers qualify for ACA premium tax credit subsidies.

Many commenters disagreed with that interpretation, officials admit in the introduction to the new regulation.

For now, officials say, workers can include the opt-out payment in premium tax credit calculations in a way that increases the chances that they’ll get tax credits, and employers can handle the opt-out cash in a way that minimizes the risk that they’ll have to pay penalties.

In the section dealing with employers that use their own fiscal years for health plans, rather than the ordinary calendar year, the IRS says it will handle conflicts between calendar years and health plan fiscal years in a way that favors the workers trying to apply for premium tax credits.

If, for example, an employer has a health plan year that starts April 1, 2017, and an employee who declines coverage starting April 1, 2017, is ineligible to sign up for employer coverage starting April 1, 2018, then the employee is considered eligible for employer coverage for the year starting April 1, 2017, but not for the year starting April 1, 2018, officials say.


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