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Review of the First Tax Year of the Affordable Care Act and Look Ahead: Part 1

Posted on Dec. 14, 2015

Today we welcome back Christine Speidel, an attorney with Vermont Legal Aid who directs the low income taxpayer clinic there. Christine has specialized over the past year in tax issues arising from the Affordable Care Act and co-authored a new chapter in “Effectively Representing Your Client before the IRS” on ACA issues.  Today we begin a three part series looking back and looking forward at the ACA.  The IRS has had a tough year in no small part due to the implementation of the ACA provisions.  While not without glitch, the IRS generally succeeded in integrating these provisions into the tax code.  As we approach the end of the year, Christine gives us a Janus like look at the ACA.  Keith

We all survived the rollout of the Affordable Care Act’s individual provisions in the last tax season. As the National Taxpayer Advocate recognized in her 2016 Fiscal Year Objectives Report to Congress, the 2015 tax season was largely successful. There were certainly bumps along the road, and it was a difficult tax season for a small minority of taxpayers, but the majority of taxpayers were unaffected by the new Affordable Care Act (ACA) provisions. It was also a relatively normal tax season for many Low Income Taxpayer Clinics (LITCs). LITCs are just starting to get into the examination, assessment and collection issues related to the 2014 Premium Tax Credit (PTC).

Taxpayers and practitioners will confront new challenges in 2016. Taxpayers who failed to reconcile their 2014 advance payments of the Premium Tax Credit (APTC) will not be eligible for APTC in 2016. New information returns will be filed for 2015, as the Internal Revenue Service continues to phase in the implementation of the shared responsibility provisions. As that implementation continues, LITCs will begin to see examination, assessment, and collection issues related to the individual shared responsibility payment. Finally, IRS enforcement of the employer shared responsibility provision could tempt some employers to retaliate against employees who claim a PTC, and employees may seek advice about the possible consequences of causing their employer to be liable for an employer shared responsibility payment (ESRP).

APTC Reconciliation Issues

It’s open enrollment time again on the Health Insurance Marketplace. This is the third open enrollment period in which individuals can sign up for private health insurance plans and apply for subsidies to help pay for those plans. Open enrollment for the 2016 plan year runs from November 1, 2015, through January 31, 2016. See, Dates & Deadlines for 2016 Health Insurance on

Health Insurance Marketplaces are also known as health benefit exchanges. The U.S. Code, federal regulations, and formal guidance documents use the term “exchange,” so that is the term I will use in this article. The federal government uses the term “Marketplace” on websites and in publications for taxpayers. The terms are synonymous.

For the first time in the exchanges’ short history, individuals can be denied APTC for a new plan year on the basis of a failure to reconcile prior-year APTC. Reconciliation of prior-year APTC is a condition of APTC eligibility, 45 C.F.R. § 155.305(f)(4), but because tax returns are filed months after open enrollment, it takes nearly a full calendar year for the system to catch a failure to reconcile. Exchanges are currently making eligibility determinations for 2016 APTC. Taxpayers who received APTC in 2014 must have reconciled those payments in order to be found eligible for 2016.

What is reconciliation, and what is not?

One frequent question among health care assisters has been, “what does it mean to reconcile APTC”? A taxpayer applying for 2016 subsidies must answer the question, “…did you file a [2014] tax return and reconcile any premium tax credit you used?” See, application forms at Strictly speaking, “reconciliation” means that an income tax return was filed, and the return included Form 8962, Premium Tax Credit, reporting the APTC received. See, id.; I.R.M., Premium Tax Credit (10-01-2015); 45 C.F.R. § 155.305(f)(4). A pending examination of the PTC does not prevent a taxpayer from receiving APTC for 2016, as long as Form 8962 was filed with the return. However, the filing of an income tax return without Form 8962 could prevent a taxpayer from receiving APTC for the following year, depending on how IRS and HHS administer the reconciliation obligation. For 2016 enrollment, the government has reportedly taken a taxpayer-friendly approach to this question, requiring only that a 2014 tax return have been filed. This has not been formally announced, it is not reflected in the application questions, and it remains to be seen whether this approach will continue in future years.

Taxpayers do not have to have paid back any excess 2014 APTC in order to receive APTC for 2016. See, I.R.M., Premium Tax Credit (10-01-2015); 45 C.F.R. § 155.305(f)(4). This makes practical sense because excess APTC is treated as additional income tax liability. I.R.C. § 36B(f)(2)(A). Its collection is not tracked separately by the IRS.

LITCs may soon begin to see situations in which IRS has assessed an erroneous liability related to APTC, including PTC audit reconsideration cases. Taxpayers should be reassured that controversies over the correct liability will not affect ongoing eligibility for APTC. If IRS has assessed tax liability based on a taxpayer’s 2014 APTC, that is sufficient reconciliation for 2016 APTC purposes, whether or not the liability is correct.

In some situations, exchanges may have data indicating that the taxpayer failed to reconcile when in fact that is not the case. This could happen if the taxpayer filed a return late in the year, especially if it was a paper return. Because the government recognizes that exchange data will lag behind reality, exchanges will accept an attestation that the applicant reconciled APTC. See, CMS Assister Newsletter, Oct. 14, 2015, section IV (on file with author). This is consistent with the general application processing regulations that require exchanges to provide subsidies based on an applicant’s attestation, pending resolution of an inconsistency. See, 45 C.F.R. § 155.315(f)(4). A question regarding APTC reconciliation has been added to the application forms. See, Application Forms for Individuals and Families at

Some taxpayers may believe that they reconciled APTC when in fact they failed to file Form 8962, Premium Tax Credit. The IRS attempted to catch these cases on the front end by holding up the processing of tax returns which it identified as lacking a required From 8962. Taxpayers whose returns were held up received Letter 12C, Individual Return Incomplete for Processing, requesting Forms 8962 and 1095-A. See, I.R.M. At-Filing Overview (10-01-2015). The IRS also sent out letters  last July (Letters 5591, 5591A, and 5596), delivering a warning to taxpayers who had failed to reconcile by that point.

Taxpayers who responded to a Letter 12C with a completed Form 8962 generally had their accounts adjusted. In some situations those taxpayers may have been told to file an amended return, in which case that would need to be filed before the taxpayer could receive APTC for 2016. See, I.R.M., Premium Tax Credit Math Error Notice Responses (10-01-2015), paragraphs 4 and 6. Also, some taxpayers may have responded in ways that were not sufficient for IRS to reconcile APTC on their accounts, and mistakenly believed their response was sufficient. Several of these taxpayers contacted Vermont Legal Aid last summer after receiving an IRS letter. Perhaps because of the widespread confusion, taxpayers in this group reportedly will not be prevented from receiving APTC for 2016. However, the federal government could change this practice for future years and may be planning to do so. The government has not formally announced any leniency for 2016, perhaps because it would prefer that taxpayers actually reconcile APTC, and perhaps because it does not anticipate this leniency continuing next year. Taxpayers may learn during the 2017 enrollment process that their 2015 APTC was not actually “reconciled” according to IRS records. If IRS and HHS procedures change next year it will be important for those taxpayers to take corrective action before open enrollment ends.

Taxpayers who filed a 2014 return but failed to properly reconcile APTC should have a pending correspondence examination by this point. If a taxpayer realizes that he or she did not file Form 8962, the fastest way to fix it may be to file an amended tax return. Alternately, the taxpayer can attempt to resolve it through the examination process.

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