$11 Billion in Credits Paid During Filing Season
Consumers who bought individual health insurance coverage through federal and state exchanges received almost $11 billion in premium assistance tax credits in fiscal year 2014, according to a report by the Treasury Department’s Inspector General for Tax Administration.
The report, available online, acknowledges that during the first quarter of 2015 the IRS received incomplete information from the exchanges. In addition, there were some programming errors in the computer systems the agency uses to spot fraudulent and incorrect claims for premiums credits.
Some of these problems have been fixed or soon will be, according to the Inspector General’s interim report. (Some lines in the report are redacted, to protect the information they believe the IRS believes could be used to file fraudulent PTC claims.) A final report will be issued later in 2015.
As of March 26 of this year, the IRS processed nearly 1.4 million tax returns that claimed about $4.4 billion in premium tax credits (PTCs). Taxpayers claimed more than $240 million in additional PTCs and reported receiving more than $572 million in excess PTC payments, which are subject to refunds.
The PTC was created through the Affordable Care Act to help cover premiums for consumers who buy health insurance through exchanges. It is a refundable credit, meaning that individuals who owe little or no income tax can still receive the credit.
Exchanges are responsible for determining the amount of the tax credit an individual is eligible to receive. They do so by pulling data from various federal agency databases, including the IRS, Homeland Security, and Social Security, as well as from state files.
Consumers can direct credits to their insurance company or use them to reduce their tax liability.
“Because of incomplete or unreported data from the exchanges,” according to the Inspector General’s report, the IRS has been unable to verify that all taxpayers claiming the PTC are actually eligible to purchase insurance on the exchanges. The agency is also unable to ensure that all taxpayers who received a tax credit properly reported that information on their tax returns.
They expected the exchanges to start providing data in June 2014, but the information did not start flowing in until October. Even then, the federal exchange did not include 1.7 million of the 4.2 million enrollments.
In addition, the IRS did not receive data for individuals in six of the 15 state exchanges as of January 20, 2015. For 10 state exchanges the IRS did receive data, but not in time for the IRS to validate the data prior to the start of the filing season. The agency needs to validate the state exchange data to use it to verify tax returns, the report noted.
On top of the problems obtaining information from the exchanges, the report says, the computer software the IRS uses to load the exchange information into its tax return processing systems did not function properly.
To learn more about ACA compliance in 2021, click here.
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