Pensioners didn’t qualify for health tax credits

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The Internal Revenue Service had to roll out a manual process last year to provide advance payments on Health Coverage Tax Credits every month to health plan administrators on behalf of displaced workers and retirees, but it mistakenly provided the tax credits for thousands of people who were old enough to qualify for Medicare.

The Health Coverage Tax Credit dates back several years before the Premium Tax Credit in the Affordable Care Act. It was created in 2002 to help workers who have lost their jobs due to foreign trade and who receive benefits through the federal government’s Trade Adjustment Assistance and Alternative Trade Adjustment Assistance programs, along with eligible recipients of pensions paid by the Pension Benefit Guaranty Corporation, which takes over payments for busted pension plans of employers who have gone bankrupt or experienced severe financial difficulties. The HCTC is a refundable tax credit that covers 72.5 percent of the cost of qualified health insurance premiums for eligible individuals and their qualified family members. The tax credit was originally established in the Trade Adjustment Assistance Reform Act of 2002. The HCTC expired at the end of 2013 but was retroactively extended in the Trade Preferences Extension Act of 2015.

The IRS was required by law to start providing HCTC advance monthly payments on behalf of eligible applicants starting in June 29, 2016. When IRS managers realized they wouldn’t be able to establish the necessary automated systems, processes and procedures in time to meet the deadline, they set up an interim manual process so they could issue the advance monthly payments of the tax credits on behalf of eligible applicants until they were finally able to establish an automated systemic process this past January. The IRS issued a total of $5.8 million in HCTC advance monthly payments on behalf of 1,220 individuals covering the months July 2016 through December 2016.

However, the Treasury Inspector General for Tax Administration said in a report Thursday that it found many individuals identified by the Pension Benefit Guaranty Corporation as potentially eligible to claim the HCTC did not meet the requirements to claim the credit. Of the 896,213 individuals identified by the PBGC as potentially eligible to claim the credit on their tax year 2015 tax returns, as of December 2015, TIGTA found that 506,396 of them (that is, 57 percent) had a characteristic that disqualified them from claiming the HCTC.

The most common characteristic, for 506,004 of them, was they were over the age of 67. At age 65, they would have been eligible to enroll in Medicare and therefore wouldn’t have qualified for the tax credits. TIGTA used the age of 67 for its analysis because qualified family members are still entitled to receive the tax credit for another 24 months. Eleven of the other ineligible tax credit recipients were deceased, and the other 566 were in prison.

TIGTA recommended that the commissioner of the IRS’s Wage and Investment Division develop processes and procedures to ensure that individuals meet HCTC eligibility qualifications before adding eligibility indicators to their tax accounts. The IRS agreed with TIGTA’s recommendation and plans to implement it. The IRS plans to request programming changes that will perform the necessary automated checks to ensure taxpayers who don’t meet the eligibility requirements don’t receive eligibility indicators on their tax accounts.

The IRS pointed out it already had some extra safeguards in place that prevented many of the tax credits from being issued in the end. “Although the report notes that approximately 57 percent of the potentially eligible individuals provided to us by the PBGC had characteristics that appear to disqualify them from coverage, it is important to note that the IRS does not rely solely on the potentially eligible participant files from the PBGC and DOL when processing and issuing the HCTC payments,” wrote Kenneth C. Corbin, commissioner of the IRS’s Wage and Investment Division. “The verification process, after ensuring the applicant is listed as potentially eligible, includes verifying age and proof of insurance. For Tax Year 2015, we received lists of approximately one million potentially eligible individuals from the PBGC and the DOL, yet after verifying age and proof of qualified insurance, issued the HCTC to only 18,573 individuals for $38.12 million. Receiving the files from the PBGC and DOL is just the first step in identifying individuals eligible to claim the HCTC.”

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