The subject of this message concerns individuals who qualified for advance premium tax credits during 2015 when purchasing health insurance through healthcare.gov or their respective state-sponsored exchange. When those individuals file their 2015 tax return, they must complete and file IRS Form 8962, Premium Tax Credit (PTC). The operative word with the advance premium tax credit is “advance.” The person estimated his/her income on the Exchange enrollment dashboard, and the Exchange estimated the amount of premium tax credit the person would qualify for and advanced such when the application was filed. Now, the 8962 must be used to true-up the estimated credit to the actual credit based on final household income. If the individual’s actual credit is greater than the estimate, then he/she will receive a refund. Conversely, if the advanced credit exceeded the reconciled credit, he/she would owe IRS.
Those whose incomes are low enough to qualify for premium tax credits typically file a 1040EZ. However, the 2015 1040EZ specifies that this form may not be used if the filer received a premium tax credit for any months in the year. Instead, the taxpayer is directed to file a Form 1040A; along with an 8962. If you will peruse these forms, you will understand that they are not inconsequential and can be difficult to navigate. In very general terms, most lower-income individuals tend to be in a less financially astute group. As such, the carriage will turn into a pumpkin; meaning that literally millions of historically simple tax filings will suddenly become a nightmare.
The reason we are addressing this with employers is that we are receiving reports that IRS computers are functioning as intended. Premium tax credit individuals (who obviously failed to read the instructions) who have already filed a 1040EZ for 2015 are seeing those fillings bounced with instructions from IRS to send a 1040A and 8962. In some cases employees who may have been in the Exchange for part of the year, are going to their HR units, assuming these are forms the employer should be providing.
Three takeaways:
1. IRS computers are actually matching 1095s and SSANs and finding those affected. We wondered if IRS would be ready. Question answered.
2. Less sophisticated taxpayers will soon find themselves in quite a traumatic circumstance.
3. If an employee brings this to HR, our best counsel is not to get involved in personal employee tax situations.
Not everyone is an expert on health care reform. But the folks at J. Smith Lanier, one of our endorsed services providers, are. For this reason they created a publication called the Health Care Reform Alert. J. Smith Lanier has been providing these to its clients since 2010 when the bill was passed and now offers it to the members of ABA. It is J. Smith Lanier’s intention in the alerts to take the many pages generated by the Centers for Medicare and Medicaid Services, U.S. Department of Labor or Treasury and filter them down into terms that all can understand. For more information on how J. Smith Lanier can help your bank, contact Tom Younger at (256) 890-9027.
