Kusserow on Compliance: 6.6 million taxpayers penalized for not having health insurance

On July 15, 2015, the IRS posted on their website a statutorily mandated mid-year report to Congress by the National Taxpayer Advocate (NTA), Nina E. Olson. Olson is the in-house ombudsman for the IRS and reported on the priority issues to be addressed during the upcoming fiscal year, including the administration of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). The NTA also reported that about 6.6 million U.S. taxpayers paid a penalty imposed for the first time this year, under the individual service responsibility provision (ISRP) of the ACA, for not having health insurance. This number was about 10 percent more than the Administration had estimated. The average amount of penalty paid was reported to be about $190. Approximately 300,000 taxpayers overpaid the penalty by a total of $35 million.

The NTA is required by statute to submit two annual reports directly to the House Committee on Ways and Means and the Senate Committee on Finance without any prior review or comment from the IRS, Treasury Department, or the Office of Management and Budget. The first report must identify the objectives of the NTA for the fiscal year beginning in that calendar year and the second must identify at least 20 of the most serious problems encountered by taxpayers, discuss the ten tax issues most frequently litigated in the courts, and make administrative and legislative recommendations to resolve taxpayer problems.

There is a penalty of as much as 1 percent of income for not having health insurance, under the ISRP of the ACA. This provision was meant to encourage people to sign up for health insurance. For those who did gain health care coverage under the Marketplaces, 2.6 million filed for premium tax credits to help them afford insurance, adding up to $7.7 billion in subsidies. About eight million people purchased health coverage through the government-run Marketplaces in 2014.

There were about 10.7 million taxpayers who filed Form 8965, Health Coverage Exemptions, claiming exemptions from the health insurance coverage requirements. By the end of April, taxpayers filed about 2.6 million returns with Form 8962, Premium Tax Credit (PTC), which reflected either the receipt of the advanced PTC or new PTC claims for 2014. The average amount of PTC claimed per return was about $3,000. The NTA also reported that some significant glitches occurred during the filing season, the most significant of which was the CMS’ issuance of erroneous Forms 1095-A, Health Insurance Marketplace Statement, to about 800,000 individuals who had purchased health insurance from the federal Marketplace.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.