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Taxpayers With Incorrect Tax Information On Tax Form 1095-A Urged To Delay Filing.

(Parker Tax Publishing March 1, 2015)

Last week, the Obama Administration announced that approximately 800,000 taxpayers had received Forms 1095-A containing incorrect calculations on the amount of the premium assistance credit they were eligible to receive. The Administration urged affected taxpayers to delay filing their tax returns until correct forms could be issued. CMS Announcement, 2-20-2015.

Federal Government Sends Incorrect Forms 1095-A

Last week, the Centers for Medicare and Medicaid Services (CMS) announced that it had sent incorrect Forms 1095-A to over 800,000 individuals who had purchased health insurance through a federal exchange (CMS Announcement, 2-20-2015). The errors stemmed from a mistake in the benchmark plan used to calculate the amount of the premium tax credit enrolled taxpayers were eligible to receive. Approximately 20 percent of Forms 1095-A included the monthly premium amount of the Silver plan for 2015 instead of 2014, leading to incorrect calculations of the tax credit. In many situations, these errors would be favorable to the taxpayer, resulting in a larger credit than they otherwise would have received.

Health insurance exchanges offer four different kinds of plans: Bronze, Silver, Gold, and Platinum. Silver plans are also known as "benchmark" plans, as the amount of the premium assistance credit is based on the cost of these plans, and are adjusted according to the taxpayer's annual income and family size. Based on this information, the Treasury pays the premium assistance credit amount directly to the insurance plan in which the individual is enrolled.

Form 1095-A tells taxpayers the dates of coverage, total amount of the monthly premiums for their insurance plan, information they may use to determine the amount of their premium tax credit, and any amounts of advance payments of the premium tax credit. This information is used to calculate the amount of the premium tax credit and to reconcile advance payments of the premium tax credit with the amounts claimed for that year. Any adjustment to tax resulting from the difference between the advance premium assistance and the allowable refundable tax credit is assessed as additional tax or a reduction in tax on the tax return.

Affected taxpayers will be receiving calls and emails from the government alerting them about their incorrect Form 1095-A. Taxpayers who enrolled through HealthCare.gov can also check their Marketplace accounts to determine whether their Form 1095-A is being corrected. The CMS anticipates that the corrected Forms 1095-A should be reissued to affected taxpayers in early March and is urging taxpayers to hold off on filing their tax returns until they receive the corrected forms.

Of the approximately 800,000 taxpayers affected, the Treasury Department has estimated that approximately 50,000 (or less than 0.05 percent of total tax filers) have already filed their taxes using incorrect form 1095As. Although the cause of the errors is still unknown, in a statement on Tuesday, the CMS concluded that these individuals do not need to file amended returns and the IRS will not pursue the collection of any additional taxes from these individuals based on updated information in the corrected forms (CMS Statement, 2-24-2015). In effect, this means that taxpayers who received a larger premium assistance credit than they would otherwise have may keep the additional credit.

Nonetheless, individuals may still file amended returns, and some individuals are likely to benefit from amending if the 2015 monthly premium for his or her second lowest cost Silver plan (the benchmark plan) is less than the 2014 premium. For example, if a filer's original Form 1095-A lists a benchmark premium of $175 and her updated form lists a premium of $225, it may be in her interest to refile.

Political Fallout

The issuance of incorrect Forms 1095-A drew sharp rebukes and letters of inquiry from Republican lawmakers. Shortly after the CMS issued its announcement, the Congressional Ways and Means Oversight Subcommittee Chairman Peter Roskam (R-IL) sent a letter to CMS Administrator Marilyn Tavenner demanding answers as to why 800,000 people were sent incorrect information about their 2014 Obamacare subsidies (Roskam Letter to CMS, 2-20-2015). The Chairman noted that the error will almost certainly impact the size or timeliness of any tax refund owed to affected taxpayers, and has created additional uncertainty in a tax season already filled with unprecedented challenges and complexity for taxpayers.

In a separate letter sent to Ms. Tavenner, Senate Finance Committee Chairman Orrin Hatch (R-Utah) questioned the ability of the CMS and IRS to properly implement certain Obamacare provisions for the ongoing tax filing season (Hatch Letter to CMS, 2-23-2015). Hatch pressed the Administration on why they chose to announce the error after close of open enrollment and on what procedures are in place for affected taxpayers that have already filed their returns.

Both letters requested information on the cause of the errors, including how the incorrect forms were discovered, who was responsible for verifying their accuracy, and what recourse is available for individuals who have already filed a tax return based on faulty information. The letters requested detailed answers and documents be provided by the first week of March. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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