ACA’s Individual Mandate — IRS Provides Update

With all of the talk about whether the Affordable Care Act will be repealed, replaced, delayed or some other description, one can forget about the fact that individuals have had tax consequences related to the ACA. A recent IRS letter that updated members of Congress about tax return data and the ACA provides an interesting window into the tax side of the ACA.

One of the provisions of the ACA provides advance payments of premium tax credits to help people reduce their out-of-pocket premium costs through the year. These are generally referred to as APTC (advanced premium tax credits).

APTC is calculated based on an individual or household’s expected income, family size and other factors. APTC is reconciled when taxes are filed at the end of the tax year. In some cases individuals will have received too much of a credit while in other cases they may qualify for more credit when their taxes are calculated.

Taxpayers who received APTC must reconcile the advanced payments using Form 8962. The IRS reported that forms 8962 processed as of December 15, 2016 showed:

  • The average premium tax credit for 5.3 million taxpayers was $3,620
    • 49% of these taxpayers claimed less than $2,000
    • 22% claimed $5,000 to $10,000
    • 5% claimed credits in excess of $10,000
  • About 2.4 million filers were due additional tax credits when they filed their taxes
    • The average additional amount received was about $670
    • 80% claimed less than $1,000
  • About 3.3 million taxpayers reported excess APTC meaning that they had to repay the excess
    • The average excess to be repaid was $870; totaling $2.9 billion
    • 50% of these filers owed a repayment of less than $500
    • 75% reported owing less than $1,000
  • There are statutory repayment caps that may apply which are based on household income
    • Statutory repayment affected approximately 921,000 taxpayers; about 28% of those claiming excess APTC
    • Approximately $874 million in excess APTC for tax year 2015 was above the statutory caps.

Individuals who have not enrolled in qualifying coverage for periods during the year may owe an individual responsibility payment – the individual mandate penalty. The individual responsibility payment for 2015 was 2% of income above the filing threshold or$325 per adult, whichever is greater.

Approximately 6.5 million taxpayers reported a total of $3.0 billion in individual shared responsibility payments. The average payment was around $470 with about 70% of payments $500 or less.