The Internal Revenue Service’s processing of tax returns that reported or claimed Premium Tax Credits during the 2015 filing season was challenged by delays in receiving data from some health insurance marketplaces and exchanges, and overpayments of Advance Premium Tax Credits, according to a new government report.
The report, publicly released Tuesday by the Treasury Inspector General for Tax Administration, noted that the Affordable Care Act created the refundable PTC to help eligible taxpayers pay their health insurance premiums.
Individuals can elect to have the PTC paid directly to their health insurance provider as partial payment for their monthly premiums (referred to as the Advance Premium Tax Credit, or APTC) or receive the PTC as a lump sum credit on their annual federal income tax return. According to the IRS, nearly $11 billion in APTCs was paid to insurers in fiscal year 2014.
Beginning in January 2015, individuals who received an APTC are required to reconcile the amount paid on their behalf to the allowable amount of their PTC when they file their tax year 2014 return. As of March 26, the IRS had processed nearly 1.4 million tax returns that reported approximately $4.4 billion in PTCs (which were either received in advance or claimed at the time of filing). Taxpayers claimed more than $240 million in additional PTCs and reported receiving more than $572 million in excess APTC payments, according to the report.
The Affordable Care Act requires exchanges to provide the IRS with information regarding individuals enrolled in an Exchange on a monthly basis (referred to as Exchange Periodic Data). Exchanges are where individuals can purchase insurance and receive assistance with paying their premiums. During calendar year 2014, health insurance enrollment period, the District of Columbia and 14 states operated their own exchanges, while the remaining 36 states partnered with the federal exchange.
The IRS anticipated the first Exchange Periodic Data submission would be received in June 2014. However, it did not receive all required enrollment data from the Exchanges prior to the January 20, 2015, start of the 2015 Filing Season, TIGTA found. For example, the IRS did not receive Exchange Periodic Data for approximately 1.7 million (or 40 percent) of the approximately 4.2 million federal exchange enrollment records and did not receive the Exchange Periodic Data from six of the 15 state exchanges.
The report was prepared to provide interim information only. Therefore, no recommendations were made in the report, TIGTA noted.
In response to the report, Debra Holland, commissioner of the IRS’s Wage and Investment Division, noted that the IRS has been working on improving its detection of erroneous claims for the Premium Tax Credit.
“The IRS is responsible for determining the proper amount of PTC a taxpayer is entitled to receive,” she wrote. “This filing season the IRS implemented a combination of vigorous preprocessing and real-time error controls to help identify potentially erroneous PTC claims. The 80 new validation checks we implemented identified over 200,000 tax returns that were rejected back to the sender for correction. Other validation checks in the return processing system further identified more than 1.3 million error conditions that were addressed and resolved before the returns were allowed to complete processing.”
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