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GOP Attacks Obamacare Tax Credit Controls

by Scott Hamilton, Tax-News.com, Washington

31 October 2016


US House of Representatives Ways and Means Committee Chairman Kevin Brady (R – Texas) and Senate Finance Committee Chairman Orrin Hatch (R – Utah) have released a Majority Staff White Paper detailing a number of issues regarding the Affordable Care Act's income eligibility verification process and the premium tax credit (PTC).

The refundable PTC assists taxpayers on low or moderate incomes with paying their health insurance premiums. Individuals may elect to receive the PTC as a lump sum credit on their annual federal income tax return, or, under the advance PTC (APTC) arrangement, have the credit paid directly to their health insurance provider during a year as partial payment for their monthly premiums.

Taxpayers receiving the APTC have their tax credit calculations checked when they file their annual tax returns with the Internal Revenue Service (IRS). Overpayments are then collected from those individuals who opted to receive the credit over the year, but then discovered that their income was higher than expected.

The White Paper pointed out that the income eligibility verification process, which is therefore used to both determine PTC eligibility and APTC repayment, has come under scrutiny from independent watchdogs, such as the Government Accountability Office (GAO) and the Treasury Inspector General for Tax Administration (TIGTA).

For example, a GAO investigation created fictitious exchange applicants and found that these identities continued to receive APTCs despite failing to file a 2014 tax return by August 2016. It found that, as at December 2015, there were more than one million individuals who received nearly USD4bn in APTCs in 2014 that have not been reconciled.

A TIGTA report released in September 2016 also revealed that nearly 1.6m taxpayers received a total of approximately USD2bn in excess APTCs on their tax returns in 2014. Due to repayment restrictions in the ACA, TIGTA estimated that the IRS is prevented from collecting USD680m of the excess APTCs received by a subset of those taxpayers.

In addition, the Centers for Medicare & Medicaid Services has announced that, for the 2017 plan year, it has increased the data matching threshold that generates an inconsistency based on discrepancies between reported income and verifiable income available from federal, state, or commercial sources. This is said to make it more likely individuals could receive APTCs in greater amounts than for which they otherwise would be eligible.

Following these reports, the White Paper detailed "how the Administration has failed to implement necessary safeguards and recommendations from these watchdogs to prevent fictitious applicants from receiving subsidies and wasting taxpayer dollars. [It] also outlines how the Administration has failed to reconcile and reclaim excess subsidies, and has instead relaxed standards for income eligibility verification in the Federally-facilitated marketplace."

"As open enrollment [for 2017] nears, the Administration continues to be more focused on enrolling Americans in a failing health care system by relaxing the standards required to sign up for and receive federal subsidies, rather than protecting taxpayers," Brady and Hatch said.

TAGS: individuals | compliance | Finance | tax | tax compliance | law | insurance | tax credits | Internal Revenue Service (IRS) | tax authority | health care | legislation | United States | standards | individual income tax | Tax

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