ACA Credits Could Mean Lower Tax Refunds
The Affordable Care Act (ACA) is already proving to be confusing and costly for consumers, with widespread premium increases and plan cancellations. Now, the Centers for Medicare and Medicaid Services (CMS) is warning tax preparers that their clients could face lower refunds in the coming tax season due to excessive tax credits on their 2013 returns.
CMS initially accepted the consumer’s estimates of income and other data, but subsequently verified that data through independent sources. That process revealed some 1.2 million households with income-related data mismatches, and another 966,000 individuals with citizenship or immigration data matching issues, as of May 30th.
It is a situation that will require more work on the part of preparers, helping their customers understand and accept lower refunds as appropriate for this year. How the preparers will handle the costs of such additional services will be left to the discretion of each preparer.
The tax credits are paid directly to the insurer if taken in advance, and are capped so that the insurance is affordable for all consumers. The cap is based on household income, ranging from $300 to $1,250 for some single taxpayers and $600 to $2,500 for married taxpayers.
Premium tax credits are available to individuals and families with incomes between 100% of the federal poverty line ($23,550 for a family of four this year) and 400% of the federal poverty line ($94,200 for a family of four) who purchase coverage in the health insurance marketplace in their state. Incomes at 400% or more above the poverty line have no cap and the taxpayer must pay the full amount of the credit.
The problem occurs, according to IRS Publication 5152, because consumers do not update their data to reflect life changes. These changes include a move, an increase or decrease in income, a marriage or divorce, the birth or adoption of a child, incarceration or release from incarceration, starting a job that offers health insurance and whether eligibility for other health care coverage was lost or gained.
The IRS has now closed 85 percent of the immigration and citizenship data issues, and is working to resolve the remaining 115,000 cases. Likewise, there are some 279,000 families with unresolved income issues. Letters have been mailed to these in English and Spanish, requesting supporting documentation.
Tax preparers can find information they need at DrakeHealth, which provides a referral service for preparers and their customers and a variety of cost calculators for healthcare. An overview of the ACA is availablehttp://drake.ws/resources/resources/affordable_care_act.php here. And a range of useful IRS notices can be found at the Taxing Subjects blog.
Sources: Internal Revenue Service Premium Tax Credit at http://www.irs.gov/pub/irs-pdf/p5152.pdf; Centers for Medicare and Medicaid Services at http://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2014-Press-releases-items/2014-09-15.html.