Tax filing problems could jeopardize health law aid for 1.8M

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2 Tax filing problems could jeopardize health law aid for 1.8M By RICARDO ALONSO-ZALDIVAR, Associated Press Updated 8:28 am, Wednesday, August 5, 2015 WASHINGTON (AP) About 1.8 million households that got financial help for health insurance under President Barack Obama's law now have issues with their tax returns that could jeopardize their subsidies next year. Administration officials say those taxpayers will have to act quickly. "There's still time, but people need to take action soon," said Lori Lodes, communications director for the Centers for Medicare and Medicaid Services, which runs HealthCare.gov. The health care law provides tax credits to help people afford private insurance. Nationally, that aid averages $272 a month, covering roughly three-fourths of the premium. By funneling the aid through the income tax system, Democrats were able to call the overhaul the largest middle-class tax cut for health care in history. But they also spliced together two really complicated areas for consumers: health insurance and taxes. Confusion has been the result for many. Consumers who got health care tax credits are required to file tax returns that properly account for them, even if they are unaccustomed to filing because their incomes are low. Unless they follow through, "they will not be able to receive tax credits to help lower the cost of their health insurance for 2016," Lodes explained. Treasury officials said 1.8 million households are at risk of losing subsidies for next year, and that number breaks down as follows: About 710,000 households that have not filed a 2014 tax return, although they were legally required to account for health insurance tax credits that they received. Some 360,000 households that got tax credits and requested an extension to file their returns. They have until Oct. 15. About 760,000 households that got tax credits and filed their tax returns omitted a new form that is the key to accounting for the subsidies. Called Form 8962, it was new for this year's tax filing season. "I think it was definitely confusing for people," said Elizabeth Colvin of Foundation Communities, an Austin, Texas, nonprofit that helps low-income people with health insurance and taxes. "It could have been worse, quite honestly. I think a lot of tax preparers didn't know how to do these (forms) either."

3 The 1.8 million households with tax issues represent 40 percent of 4.5 million households that had tax credits provided on their behalf and must account for them. The rest had their returns successfully processed by the IRS as of the end of May. Earlier this summer, a Supreme Court decision preserved health care tax credits for consumers in all 50 states, turning back a challenge from conservatives opposed to "Obamacare." Because of the law's built-in complexity, some of those consumers may now be at risk of losing their assistance. Administration officials say they're working hard to prevent that. An estimated 16 million people have gained health insurance since HealthCare.gov opened for business in late 2013, and the White House does not want any slippage. The IRS has started reaching out to consumers with tax issues. HealthCare.gov is reporting an increase in tax-related calls to its consumer assistance center. That telephone number is The Health and Human Services department plans another outreach campaign in the fall, coordinated with the start of the 2016 sign-up season on Nov. 1. "What the IRS is doing here is sending these people a not-so-gentle reminder that they need to file or they will put their subsidy at risk," said Mark Ciaramitaro, vice president for tax and health care at H&R Block, the tax preparation company. He cautioned that many consumers will find the process cumbersome, so they should waste no time getting started. Despite a thinning out of taxpayer services due to budget cuts, IRS Commissioner John Koskinen says the tax-filing season went relatively smoothly, even with the health care law added. Nonetheless, he acknowledged that there's a learning curve for everybody on health care. "This is the first year for this new provision," Koskinen wrote in a letter to lawmakers last month. "We expect that taxpayers will continue to better understand this process as it becomes more routine." The administration and the health law's supporters could be doing a better job educating consumers, said Judy Solomon of the Center on Budget and Policy Priorities, which advocates for low-income people. "There is definitely room for improvement to make sure people understand how it works," she said. "They are getting an advance payment of a tax credit, and to finish the process they need to file a tax return. They have to look at it as a process that is a year long and has multiple steps." Online: HealthCare.gov:

4 Ryan White HIV/AIDS Program (RWHAP) Update to Policy Clarification Notice Clarifications Regarding the RWHAP and Reconciliation of Advance Premium Tax Credits under the Affordable Care Act Frequently Asked Questions June Will the grantee be required to track and report excess premium tax credit (PTC) received from clients on the Federal Financial Report (FFR)? Response: Grantees are required to track the source and use of funds for Ryan White HIV/AIDS Program (RWHAP) activities. Financial records must contain information pertaining to the RWHAP award, authorizations, obligations, unobligated balances, assets, expenditures, income and interest and be supported by source documentation. This requirement includes tracking excess PTC. Note: Per PCN 14-01, recovered excess PTCs are considered insurance refunds, not program income. Insurance refunds are not reported on the FFR. 2. How do individuals compute their premium tax credit and reconcile any advance payments of the premium tax credit (APTC)? Response: The IRS provides answers to frequently asked questions about the premium tax credit at: Answers-on-the-Premium-Tax-Credit. Archived webcasts addressing the reconciliation process are available on the HRSA/HAB Affordable Care Act website at: 3. Can a RWHAP grantee or third party make a payment to the IRS on behalf of a client for the excess APTC repayment owed to the IRS? If so, how would this work logistically? Response: Yes, a RWHAP grantee or third party can make a payment to the IRS on behalf of a client. However, it is critical that the client s name, SSN [make sure that the client s SSN is shown first if this is a joint return], and tax year be clearly communicated with the payment for it to be credited correctly.

5 4. Can a RWHAP grantee or third party make a payment to the IRS on behalf of a client for the excess APTC repayment even if the client does not have a balance due to the IRS (because of other tax payments or credits on the return)? Response: Yes, a RWHAP grantee or third party can make a payment to the IRS for the amount of the excess APTC repayment, even if a client had no overall tax liability for that year. An additional payment made after an account has a zero balance (and that does not have a specific designation that it be applied to the following tax year as an estimated tax payment) would be temporarily held in the account, until it is determined that there are no other outstanding liabilities, prior to being refunded to the taxpayer. 5. Must a RWHAP grantee or third party vigorously pursue excess PTC even if the client is not getting a refund from the IRS (because of other tax liabilities on the return)? Response: Yes, a RWHAP grantee or third party must vigorously pursue excess premium tax credit even if the client is not due a refund. 6. How can RWHAP grantees determine the amount of excess APTC repayment they may pay to the IRS on behalf of the client? Similarly, how can RWHAP grantees determine the amount of excess premium tax credit to vigorously pursue? Response: RWHAP grantees can only pay the excess APTC repayment attributed to the individual client. Grantees may not use RWHAP funds to pay for any other tax liability for which the client is responsible or make direct payments to clients. Similarly, RWHAP grantees can only vigorously pursue the excess premium tax credit amount attributable to the individual client. Grantees can find the information needed to determine a client s excess APTC repayment or excess premium tax credit on the associated tax forms Form 1095-A (Health Insurance Marketplace Statement), Form 8962 (Premium Tax Credit), and the Form 1040 series of individual income tax returns. Grantees should document the methodology used to determine the amount of excess APTC repayment or excess premium tax credit attributable to individual clients (e.g., in situations where the client s tax return includes additional members in the household and/or multiple people in the household are enrolled in Marketplace coverage). 7. Can the IRS provide a proof of payment or receipt of payment confirmation to the RWHAP grantee making the payment? Response: The IRS only issues receipts at walk-in locations (for example IRS Taxpayer Assistance Centers). The IRS does not send receipts to tax filers who mail in payments. Therefore, providing a receipt of payment to the RWHAP grantee would only be possible with

6 the tax filer s express written authorization for that tax year and if the payments were made in person. 8. Can a RWHAP grantee pay the interest accrued due to late payment of the excess APTC repayment? Response: No, late payment fees are not allowable costs under the 45 CFR Part 75. RWHAP grantees should encourage their clients to reconcile any APTC well before the IRS tax filing deadline to avoid late payments, and grantees should have policies in place to support this. 9. What actions should a grantee take when a client discloses they did not file their taxes, but received premium support from a RWHAP grantee to cover the cost of their Marketplace coverage? Response: If the RWHAP discovers that the client did not file a tax return to reconcile any APTC, this in and of itself does not provide justification for the RWHAP grantee to terminate its support of the client s premium. Grantees should continue to follow the Policy Clarification Notice guidance on premium assistance and should continue to document attempts to engage in the vigorously pursue policies to seek excess PTC from these clients, including the steps that were taken to pursue these funds from clients. The Centers for Medicare and Medicaid Services (CMS) has provided guidance pertaining to enrollees who did not file taxes for the year in which they received advance premium tax credits, noting that failure to file may result in discontinued eligibility for APTC. CMS Guidance is located at: Is there a site where we can go to access more information about tax policies as they pertain to the Affordable Care Act? Response: The IRS has detailed information about tax forms and other considerations at: Additionally, the IRS has published a helpful publication that covers some of the tax provisions of the Affordable Care Act that is titled Health Care Law: What s New for Individuals & Families available at:

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9 Main Question: AT ISSUE Does the language empowering the Government to offer subsidies to individuals who purchased QHPs through through an Exchange established by the State include both Federal Exchanges and State Exchanges? Practical Question: Can the IRS allow individuals to receive tax subsidies for QHPs purchased on either State or Federal Exchanges? Legal Question: When interpreting a statue, do you go only by the plain meaning of the key provision or do you look at the statute as a whole, placing this language in context? Center for Health Law and Policy Innovation 15

10 THE PARTIES ARGUMENTS Challengers The wording in the text of the Affordable Care Act (ACA) prohibits the Federal Government from providing subsidies to individuals if their State does not run its own Exchange Key wording: subsidies shall be granted for such individuals who purchase their insurance in Exchanges established by the State You must use the plain meaning of language when interpreting statutes Administration The wording of the ACA must be interpreted according to Congressional intent Congress intended to provide subsidies to all lower-income Americans When the Federal Government runs an Exchange it is acting for the State You must look at the statute as a whole when interpreting it, not just provisions out of context 16

11 THE PURPOSE OF THE ACA REQUIRES SUBSIDIES ON ALL EXCHANGES The Court found that the statutory scheme compels us to reject petitioners interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange and likely create the very death spirals that Congress designed the Act to avoid In 2014, 87 percent of people who bought insurance on a Federal Exchange did so with subsidies. Without these subsidies, almost all of these individuals would become exempt from the individual mandate because they would not have any affordable health insurance coverage available. This would severely destabilize the health insurance markets in States with Federal Exchanges. The Court found it implausible that Congress meant the Act to operate in this manner because Congress does not alter the fundamental details of a regulatory scheme in vague terms or ancillary provisions Congress would not have the viability of the ACA hinge on a subsub-sub section of the Tax Code. Center for Health Law and Policy Innovation 21

12 LEGAL IMPACT OF KING Millions of consumers across 34 States who rely on the subsidies to afford their health care insurance coverage will keep their access to health care The legal reasoning behind the decision provides strong protection for consumers under future presidential administrations Had the Court applied the Chevron test, an IRS in the future, under a more conservative president, could have chosen to interpret the language differently and removed subsides from the Federal Exchanges Future administrations cannot remove the subsides from the Federal Exchanges without Congressional action Center for Health Law and Policy Innovation 23

13 Thursday, June 25, :15 PM Health care subsidies stand! The Texas HIV/AIDS Coalition is pleased with the Supreme Court s 6-3 decision in King v. Burwell to uphold the authority of the federal government to grant tax subsidies to individuals purchasing qualified health plans in states with Federally-Facilitated Marketplaces. Today s ruling will ensure access to affordable health care by allowing individuals to continue to sign up for subsidized health plans in the Marketplace. The 1.2 million Texans who have already purchased Marketplace plans, and the over 800,000 individuals who receive subsidies will continue to be able to access quality, affordable health care that is a right, not a privilege. "Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them." - Chief Justice John Roberts If you have any questions, please contact Januari Leo at Read the decision HERE. Januari Leo Director of Public Affairs Legacy Community Health Montrose Clinic