For most, tax season is over; but if you purchased your healthcare plan through ACA’s Health Insurance Marketplace, you could still owe more than what you already paid or you might receive a larger refund. In a recent audit of 2015 tax returns by the Treasury Inspector General for Tax Administration (TIGTA), it was found that the IRS miscalculated the allowable Premium Tax Credits (PTC) for just over 27,000 taxpayers who received subsidies for health insurance.
What does this mean and how might it affect you? With the creation of ACA, a new refundable tax credit was born – the Premium Tax Credit. This credit is meant to help families with low to moderate income offset the cost of health care insurance purchased via the Health Insurance Marketplace, also known as the Exchange. The IRS is now reviewing returns that might have been processed incorrectly due to PTC miscalculations.
Here’s how it works. To claim the credit, individuals can either receive the benefits by filing it on their tax return or receive it in advance by opting to have the Marketplace compute an estimated credit. This estimated credit is paid in advance to the insurance company to lower the individual’s monthly premium payments. Those who opt to receive an advance are required to reconcile the amount paid on their behalf against the allowable credit amount on their tax return.
You may have had to file an additional form for ACA this tax year. ACA also requires health insurance exchanges to provide monthly reports to the IRS with recipient payment data referred to as Exchange Periodic Data, or EPD. TIGTA’s analysis of more than 2.6 million tax returns with a PTC claim filed between January 20, 2015, and May 28, 2015, determined that the IRS had EPD available and that allowable PTC was accurately determined on more than 93% of the returns.
TIGTA and the IRS worked to find the cause for calculation differences in the remaining 7% of the returns. It was determined that computer programming errors, which are now corrected, accounted for 27,827 erroneous returns. Additionally, exchanges had not provided EPD to the IRS before the start of the 2015 filing season as required. The IRS was unable to ensure that individuals claiming the PTC met the most important eligibility requirement –having insurance purchased through an exchange– resulting in 438,603 tax returns processed with incorrect EPD or without EPD.
According to TIGTA Inspector General, J. Russell George, the IRS developed manual processes to verify PTC claims associated with exchanges that did not provide the required EPD. However, these processes resulted in the IRS having to suspend tax returns during processing increasing the need for resources and the burden on taxpayers entitled to these claims.
The IRS is now working to review the 27,827 tax returns to ensure that these individuals receive the correct PTC and to modify their information verification processes so it could be that there will be tax credits refunded or owed. Keep an eye out for IRS notices in your mail and remember to take caution of fraudulent IRS phone calls and emails. To learn more about your reporting requirements and eligibility for the Premium Tax Credit, visit IRS.gov/PTC.
