TIGTA Reports 27.4% of Premium Tax Credits Are Improper Payments
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On April 30, 2020, the Treasury Inspector General for Tax Administration (TIGTA) issued a new report entitled, “Improper Payment Reporting Has Improved; However, There Have Been No Significant Reductions to the Billions of Dollars of Improper Payments.”
Among its findings, the Report identified an IRS estimate of 27.4% ($540.9 Million) of the total Premium Tax Credits (PTCs) for the fiscal year 2019 were improper and that the IRS has “made little progress” to reduce the improper payments. The Report also reflected an increase in the amount of PTCs issued since 2016. Although TIGTA flagged the issue to the IRS, the IRS indicated that they will not be ready to resolve the issue in part due to the need to align on the definition of “improper payments” with the Department of Health and Human Services (HHS) which administers the PTCs. The IRS indicated its goal to have a procedure in place by summer 2020.
The whopping 27.4% rate of improper payments coupled with the significant delay in developing a procedure to resolve such improper payments results in a higher risk of penalty to employers who are subject to the ACA’s Employer Mandate. Under this Mandate, employers who have at least 50 full-time or full-time equivalent employees are subject to a penalty if they fail to offer health coverage to at least 95% of their full-time employees (and dependents), whereby such coverage is affordable and meets Minimum Value to the employee. This penalty is triggered by an employee who receives a PTC. Hence, the more likely an employee receives a PTC, erroneously or otherwise, the more likely the employer will be subject to penalty. This risk is magnified by the IRS’s standard procedure to defer to the HHS in the issuance of the PTC without inquiring as its propriety.
This is all the more reason employers need to ensure that they are accurately reporting their health care offers in their annual IRS Forms 1094 and 1095. This is the primary line of defense by employers who have employees erroneously receiving PTCs.
To learn more about ACA compliance in 2021, click here.
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