Health Reform WK-EDGE Health insurance subsidies may come with unexpected costs for 1.4M taxpayers
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Wednesday, January 20, 2016

Health insurance subsidies may come with unexpected costs for 1.4M taxpayers

By Jenny Burke, J.D., M.S.

Tax issues may be the cost of assistance with the price of health insurance for many Americans who took advantage of the health insurance subsidies made available by the Patient Protection and Affordable Care Act, (ACA) (P.L. 111-148). IRS Commissioner John Koskinen highlighted the difficulties of the health law in a letter to Congress, as he reported on the outcome of the 2015 tax filing season, the first one in which taxpayers saw changes to their income tax returns related to the individual shared responsibility provision and the premium tax credit provision of the ACA.

Individual tax credits. When signing up for health insurance coverage via a health insurance marketplace, eligible individuals may choose to either have advance payments of the premium tax credit (APTC) made directly to their insurance provider to reduce their premiums throughout the year, get their assistance at tax time as a premium tax credit (PTC), or a combination of the two. If taxpayers chose to have the APTC paid on their behalf in 2014, that individual must file a tax return to reconcile the APTC, regardless of whether they otherwise had a tax filing requirement.

The letter from the IRS indicated that more than 1.4 million households that have failed to properly account for their 2014 tax credits including:

  • Approximately 316,000 taxpayers with APTC did not file a tax return that was processed by the end of October and did not file an extension. This is different from before the ACA, when many low-income people were not required to file taxes.
  • Some 976,000 households that got tax credits and filed 2014 returns, but omitted a new form, Form 8962, which is what accounts for their subsidies. This form was introduced to be used for the 2015 tax filing season.
  • About 147,000 households that had requested extensions to file their 2014 taxes, but never actually filed their taxes.

Some individuals who did use Form 8692 still owe money, however. An estimated 49 percent owe a repayment of less than $500 and 75 percent owe less than $1,000.

Taxpayer outreach. The IRS is conducting outreach to taxpayers to help them understand the new requirements. “It is not unusual for the IRS to follow up with taxpayers for more information about their returns. This is the first year for this new provision, and we expect that taxpayers will continue to better understand this process as it becomes routine,” Koskinen noted in his letter, expressing the agency’s willingness to work through these new processes alongside taxpayers. “We are committed to learning from this experience so that we can improve our processes and enhance the support we provide in the future.”

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