May 19, 2016
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On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
Article Highlights:
One of the cornerstones of the ACA is the PTC, which is a refundable tax credit that helps lower-income families pay for their health insurance when they obtain it from a state or the federal insurance Marketplace. The amount of the PTC for a family is based on the family size and their household income as compared to the federal poverty guidelines. The insurance Marketplace allows (and actually encourage) families to claim an APTC based upon an estimate of income for the year, but then the tax-return filer must reconcile the APTC with the PTC the family is actually entitled to. This is done on the tax return for the year submitted to the IRS by the filer in the subsequent year.
Individuals who might otherwise not need to file a tax return are required to file if they or someone in their family received APTC so that the reconciliation with the PTC can be done. If a return is not filed, then they will not be eligible for APTC or cost-sharing reductions to help pay for the Marketplace health insurance coverage in future years. In other words, they will be responsible for the full cost of their monthly premiums.
Many taxpayers fail to complete the reconciliation on their tax return, which can result in an additional credit over and above the APTC claimed at the Marketplace, or on the flip side, they may have to repay some portion of the APTC. If the IRS computer compares the Form 1095-A from the Marketplace to what is reported on the tax return and finds the reconciliation was not completed or was completed incorrectly, or that the taxpayer failed to file a return, the taxpayer can expect to receive correspondence from the IRS.
New for 2015 is the employer-reporting requirement, Form 1095-C, where employers report whether they offered employees affordable health care insurance. The rub here is that the ACA does not allow the PTC for any month when the employer offers the employee affordable health care insurance. The year 2015 is the first year for such reporting, and taxpayers who claimed the PTC when their employer offered them affordable health care insurance will soon be receiving letters from the IRS requesting repayment of any APTC they received through the Marketplace and/or the PTC they claimed on their 2015 tax returns.
Another issue that could generate IRS correspondence is when a taxpayer receives a corrected 1095-A from a Marketplace with corrected premium amounts, the cost of second-lowest silver insurance, and/or the amount of APTC paid that differ from the original amounts. Unless the changes are insignificant, the corrected amounts will change the amount of the PTC the taxpayer is entitled to, and if the taxpayer has not already amended their tax return to correct the PTC, he or she will no doubt receive correspondence from the IRS. This is true even though the error in reporting is the government's (Marketplace's) fault.
CAUTION: While legitimate correspondence from the IRS should not be ignored, be aware that all of these issues provide ID thieves and scammers with opportunities to develop plans to scam taxpayers. If you receive any form of communication from the IRS, always be suspicious. This is especially true of e-mails, which the IRS rarely uses and then only if contact has first been made by correspondence. Never click on any links embedded in such an e-mail, as your computer or phone may end up with a virus or embedded cookie, or you may be taken to a site disguised as an IRS site where the scammers attempt to have you divulge ID information. If you receive a phone call from an alleged IRS agent asking for immediate payment, simply hang up—it is a scam. Scam artists prey on everyone's natural fear of the IRS by using threats of property seizure and even arrest.
Don't be a victim; call this office whenever you receive communications from the IRS or state taxing authorities.
- Premium Tax Credit
- Advance Premium Tax Credit
- Credit Reconciliation
- Employer Offer of Affordable Health Insurance
- Corrected 1095-A
- Watch Out for Scams
One of the cornerstones of the ACA is the PTC, which is a refundable tax credit that helps lower-income families pay for their health insurance when they obtain it from a state or the federal insurance Marketplace. The amount of the PTC for a family is based on the family size and their household income as compared to the federal poverty guidelines. The insurance Marketplace allows (and actually encourage) families to claim an APTC based upon an estimate of income for the year, but then the tax-return filer must reconcile the APTC with the PTC the family is actually entitled to. This is done on the tax return for the year submitted to the IRS by the filer in the subsequent year.
Individuals who might otherwise not need to file a tax return are required to file if they or someone in their family received APTC so that the reconciliation with the PTC can be done. If a return is not filed, then they will not be eligible for APTC or cost-sharing reductions to help pay for the Marketplace health insurance coverage in future years. In other words, they will be responsible for the full cost of their monthly premiums.
Many taxpayers fail to complete the reconciliation on their tax return, which can result in an additional credit over and above the APTC claimed at the Marketplace, or on the flip side, they may have to repay some portion of the APTC. If the IRS computer compares the Form 1095-A from the Marketplace to what is reported on the tax return and finds the reconciliation was not completed or was completed incorrectly, or that the taxpayer failed to file a return, the taxpayer can expect to receive correspondence from the IRS.
New for 2015 is the employer-reporting requirement, Form 1095-C, where employers report whether they offered employees affordable health care insurance. The rub here is that the ACA does not allow the PTC for any month when the employer offers the employee affordable health care insurance. The year 2015 is the first year for such reporting, and taxpayers who claimed the PTC when their employer offered them affordable health care insurance will soon be receiving letters from the IRS requesting repayment of any APTC they received through the Marketplace and/or the PTC they claimed on their 2015 tax returns.
Another issue that could generate IRS correspondence is when a taxpayer receives a corrected 1095-A from a Marketplace with corrected premium amounts, the cost of second-lowest silver insurance, and/or the amount of APTC paid that differ from the original amounts. Unless the changes are insignificant, the corrected amounts will change the amount of the PTC the taxpayer is entitled to, and if the taxpayer has not already amended their tax return to correct the PTC, he or she will no doubt receive correspondence from the IRS. This is true even though the error in reporting is the government's (Marketplace's) fault.
CAUTION: While legitimate correspondence from the IRS should not be ignored, be aware that all of these issues provide ID thieves and scammers with opportunities to develop plans to scam taxpayers. If you receive any form of communication from the IRS, always be suspicious. This is especially true of e-mails, which the IRS rarely uses and then only if contact has first been made by correspondence. Never click on any links embedded in such an e-mail, as your computer or phone may end up with a virus or embedded cookie, or you may be taken to a site disguised as an IRS site where the scammers attempt to have you divulge ID information. If you receive a phone call from an alleged IRS agent asking for immediate payment, simply hang up—it is a scam. Scam artists prey on everyone's natural fear of the IRS by using threats of property seizure and even arrest.
Don't be a victim; call this office whenever you receive communications from the IRS or state taxing authorities.
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