Treasury Notes

 Update on the ACA and Tax Filing Season

By: Mark J. Mazur
7/17/2015

​The Affordable Care Act (ACA) is working. More than 16 million uninsured people have gained health coverage since the law was passed and the evidence is clear that significant numbers of families and businesses are benefitting from improved access, quality of care, and affordability. As part of the ACA’s implementation, this tax season was the first time that individuals filed income tax returns reflecting the major new coverage provisions. Likewise, this is the first time the tax system is being used to ensure compliance with these new provisions. As with any new tax provision, taxpayers need to learn about the changes and the new procedures, and we are committed to helping educate them while maintaining the integrity of the tax system.

Today, in an effort to be as transparent as possible and in response to Congressional inquiries, IRS reported some preliminary tax filing data related to the ACA. It is important to note that these data are being released much earlier than usual by the IRS. The review process and post-filing compliance work are ongoing and the data being reported are, of course, subject to change. 

Nonetheless, the preliminary data provides information about this year’s tax season and helps us identify areas where that taxpayer experience can be improved. It also allows us to assess our estimates from the beginning of tax filing season of the percentages of taxpayers who would:

1. Check a box on their tax return indicating they had health coverage for the entire year;

2. Claim an exemption from the requirement to have health coverage;

3. Pay a fee for choosing to remain uninsured despite having access to affordable coverage; or

4. Need to reconcile tax credits received for Marketplace coverage. 

 The preliminary filing season results are generally in line with our estimates from earlier this year:

1. Check the box: In line with estimates, we are seeing that about 76 percent of tax filers just checked the box on their income tax return to indicate they had qualifying coverage all year. Adding in dependent filers who don’t have to report on their coverage, we find that 81 percent of filers checked the box or didn’t have to do anything new this year.

2. Exemptions: So far, about 9 percent of filers have claimed a health care coverage exemption. This is just below the estimated range from earlier this year of 10-20 percent of filers who we thought would claim an exemption because they could not afford coverage or met other conditions.

3. Fee for choosing to remain uninsured: Approximately 6 percent of taxpayers filing income tax returns have paid a fee for remaining uninsured and not claiming an exemption. We projected that 2 to 4 percent of tax filers would pay this fee. One reason for the higher-than-predicted percentage is that around 300,000 taxpayers paid the fee when they may not have been required to because they likely qualified for an exemption. The IRS will be reaching out to these taxpayers to inform them about available exemptions and note that they may benefit from amending their tax return. This outreach will also help educate taxpayers about the options they have for future years.

4. Reconciling tax credits: We estimated that approximately 3 to 5 percent of taxpayers benefited from advance payments of the premium tax credit to help lower the cost of their Marketplace coverage in 2014 and would have to reconcile these tax credits on their tax return.

We currently anticipate that about 4 percent of households are required to file tax returns to reconcile tax credits they benefitted from through the year or will claim credits on their tax return, within the previously estimated range. When individuals signed up for Marketplace coverage, they were informed of the requirement to reconcile these credits at tax time to maintain eligibility in future years. Of these taxpayers expected to reconcile, about two thirds have already filed returns and reconciled credits, accounting for approximately $10 billion of the $15.5 billion provided through the Marketplaces in 2014. Many additional taxpayers are expected to reconcile in the coming months.

 

Of the consumers who have not yet reconciled, most have not yet filed a return, and a third of these requested an extension and have until October 15 to file. Therefore additional returns are expected to be filed in the coming months containing these reconciliations.

Other Marketplace consumers filed a tax return but did not reconcile their tax credits. IRS is following normal procedures to follow-up with taxpayers who may have made mistakes on their returns, as appropriate.

It’s important to note that as part of its normal compliance process, the IRS is reaching out to taxpayers who did not reconcile their premium tax credits. Consumers who ultimately do not file a return that reconciles these credits will not be eligible for this financial assistance in future years. Taxpayers who have not yet filed their 2014 income tax return to reconcile their tax credits for Marketplace coverage should do so as soon as possible to maintain their eligibility for these credits in 2016.

Since this is the first year for these new provisions, we expect that taxpayers will continue to become acclimated to the changes in the tax filing process in future years. We remain committed to providing information to taxpayers to help them understand and meet their responsibilities under the ACA. And we are using the experience this year as a learning device to improve our processes and the taxpayer experience moving forward.​ 

Mark J. Mazur currently serves as the Assistant Secretary for Tax Policy.
Posted in:  Affordable Care Act; Internal Revenue Service
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