There are two new ways the taxman can get you in 2014: recovery of excess advance healthcare tax credits and the individual shared responsibility payment. John Koskinen, the Internal Revenue Service Commissioner, testified in a hearing before the House Ways and Means subcommittee on health that individuals receiving an advance tax credit to purchase health insurance on the state marketplace or exchange better watch out. As we all know there wasn’t particularly good monitoring or verification of the advance credit, and if I had to guess, I would expect, in an effort to minimize premiums paid, incomes were estimated lower not higher.
Koskinen said, “When filing tax returns,…taxpayers will calculate the actual credit they qualified for based on their actual 2014 income. If the actual premium tax credit is larger than the sum of advance payments made during the year, the individual will be entitled to an additional credit amount. If the actual credit is smaller than the sum of the advance payments, the individual’s refund will be reduced or the amount of tax owed will be increased, subject to a statutory sliding scale of income-based repayment caps.”
Individuals will need to file a new tax Form 8962, Premium Tax Credit, to report or claim the credit. The amount received will be reported to them on new tax Form 1095-A, Health Insurance Marketplace Statement. The sophisticated audit verification process the IRS has developed to match reported information will make it easy to verify if excess credits were awarded based upon reported income. But even more who have claimed credits will be determined to be completely ineligible if they have available affordable coverage which meets the minimum value standard.
Determining if an individual owes a shared responsibility payment will be far more difficult due to the significant number of exceptions provided in the legislation or through regulations granting relief. So while the IRS may also look for these payments, look for the lion’s share of IRS activity to be focused on advance credit recovery. This is a pot of gold for IRS auditors and a river of tears for those who—intentionally or not—may owe more money than they imagined or can afford to repay.