Internal Revenue Service Commissioner John Koskinen told a congressional subcommittee about the IRS's progress on the Affordable Care Act and the impact that tax subsidies will have next tax season.

In a hearing before the House Ways and Means Health Subcommittee, Koskinen talked about how the IRS would be processing the premium tax credit, which helps subsidize the cost of health insurance coverage for eligible taxpayers.

He noted that eligible individuals can choose to have their insurer receive advance payment of the tax credit, the amount of which is based on a determination made by a health insurance marketplace or exchange. The amount of the tax refund may be increased or decreased according to how much of the tax credit is correctly calculated.

"At the end of the coverage year, taxpayers who opted for advance payment of the credit will reconcile the payment on their 2014 tax returns filed in 2015," Koskinen explained in his prepared testimony. "When filing tax returns, these taxpayers will calculate the actual credit they qualified for based on their actual 2014 income. If the actual premium tax credit is larger than the sum of advance payments made during the year, the individual will be entitled to an additional credit amount. If the actual credit is smaller than the sum of the advance payments, the individual's refund will be reduced or the amount of tax owed will be increased, subject to a statutory sliding scale of income-based repayment caps."

"Beginning with coverage purchased in 2014, each [insurance] marketplace will issue the 1095-A to individuals who purchased a policy through the marketplace," he said. "The IRS recently issued a draft version of the form and its accompanying instructions. The transactional information contained in the 1095-A issued by the marketplace will include not only the fact and cost of coverage, but also information on any advance payments of the premium tax credit made during the coverage year to the taxpayer's insurance company on his or her behalf. This information will also be supplied to the IRS."

Koskinen pointed out that the IRS is currently in a testing phase with both the federal and state health insurance marketplaces to ensure that its systems will be ready to operate as planned when filing season opens in early 2015. The marketplaces are responsible for reporting the necessary information accurately and on time to the IRS to allow the agency to efficiently sort for the basic qualification and computational elements of the premium tax credit.

 

DETECTING NONCOMPLIANCE

Koskinen said the IRS would not share publicly all of the tools and techniques it would use to detect noncompliance, but he noted that the IRS will be able to determine whether there is a record of anyone on the tax return having enrolled in a health insurance marketplace, which is a basic requirement to claim the credit, as well as whether any advance payments that have been made directly to an insurance company have been properly netted against the credit calculation.

The IRS would also be able to see if a tax return reports inaccurately high premium costs or inaccurately low advance payments, compared to the marketplace data. The IRS's preparations for the upcoming tax filing season in regard to the Affordable Care Act also involve the individual shared responsibility provision, he acknowledged.

Along with building and improving the IRS's processes and systems to handle the requirements of the Affordable Care Act, and developing and issuing new forms and accompanying instructions in advance of the filing season, the IRS is also trying to make sure taxpayers know how the major ACA provisions may affect them at tax time. Koskinen pointed out that the IRS.gov site has a section devoted to the act, which contains answers to many questions about the tax provisions, along with links that will take taxpayers to the online ACA resources of other federal agencies.

 

CHANGE IN CIRCUMSTANCES

The IRS has also been making an effort to let taxpayers and their tax preparers know that they need to make sure that if there is a change in the taxpayer's financial circumstances and they have been receiving the premium tax credit through a health insurance marketplace, they need to adjust their information accordingly.

"Throughout 2014, we have been making substantial efforts to ensure that individuals who opted for advance payment of the premium tax credit understand that a change in their circumstances during the year can make a big difference between the marketplace's initial determination of how much credit a person qualifies for and the final premium tax credit amount," he said.

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