IRS Faces Health Credit Test

by Mike Godfrey, Tax-News.com, Washington

21 October 2010

A new report has found that the United States Internal Revenue Service (IRS) successfully and promptly expanded the Health Coverage Tax Credit (HCTC) as required by the American Recovery and Reinvestment Act of 2009 (Recovery Act), but it will have difficulty in handling significant increases in the number of monthly enrolled participants.

The HCTC is a refundable tax credit created in 2002 to assist certain workers who lost their jobs due to foreign trade and retirees who receive payments from the Pension Benefit Guaranty Corporation. The Recovery Act has also included provisions to help make health coverage more affordable, and those provisions are expected to improve the availability of health coverage to eligible individuals and their qualifying family members.

The Treasury Inspector General for Tax Administration (TIGTA) found that, while the IRS successfully processed a 67% increase in the number of individuals whose health plans received monthly payments (from more than 15,500 individuals in 2009 to almost 26,000 individuals in 2010), its ability to process a significantly larger volume is limited.

The TIGTA said that the HCTC programme and systems are built to support only 57,000 enrolled participants. The IRS will therefore face challenges if there is a significant increase in the number of monthly enrolled participants as a result of provisions included in the Recovery Act or newly enacted healthcare reform legislation.

“Fortunately, the number of claims for this credit has been within IRS’s capacity to process the claims and payments,” said J. Russell George, the TIGTA. “The IRS will need to take programme and system capacity limitations into consideration when preparing for implementation of new health care laws.”

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