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IRS Criticized On Health Insurance Tax Allocation

by Mike Godfrey,, Washington

29 September 2015

The US Internal Revenue Service (IRS) needs to make improvements to ensure the accurate allocation of the health insurance provider fee, known as the health insurance tax (HIT), according to a report released by the Treasury Inspector General for Tax Administration (TIGTA).

The Affordable Care Act imposes the annual HIT on all health insurance providers (referred to as covered entities). The IRS calculates the fee amount for each covered entity based on its portion of market premiums.

The amount of the fee was USD8bn for the 2014 fee year. It is estimated that it will total USD11.3bn this year, USD14.3bn by 2018, and will continue to rise based on premium trends every year.

The overall objective of TIGTA's review was to determine whether the IRS has developed processes to identify covered entities required to file premium reports, assess penalties on those that did not, and accurately determine covered entities' market shares and applicable annual fees.

TIGTA found that the IRS has made significant efforts to educate covered entities on fee requirements. However, the identification of all covered entities required to report net premiums continues to be a challenge, because third-party data sources do not contain information regarding all covered entities.

TIGTA also discovered that current regulations do not provide a process for the IRS to correct the HIT for all covered entities once the final fee letters are distributed. As a result, covered entities that file after the final HIT calculation and distribution of the fee letters are not subject to their required portion of the fee.

"The lack of a reconciliation process allows covered entities that do not timely file required forms to be exempt from paying their portion of the annual fee," said J. Russell George, the TIGTA. "This in turn results in covered entities that comply with the timely filing requirement paying more than their share in fees."

TAGS: compliance | tax | tax compliance | law | insurance | insurance tax | fees | Internal Revenue Service (IRS) | tax authority | health care | legislation | United States | Tax

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