The IRS mistakenly overpaid more than $8 million to HealthCare.gov customers and Obamacare users in California, and cheated tens of thousands of others out of nearly $2 million in 2015 because the government relied on incorrect information to figure their taxes, an audit revealed Tuesday.
About 70,850 filers received $8.3 million in federal subsidies that they didn’t deserve, while roughly 69,400 taxpayers missed out on $1.9 million they should have got, based on a review of returns filed between late January and late May in 2015, the Treasury Inspector General for Tax Administration said.
The problem stemmed from erroneous forms the government sent to about 800,000 customers, which used the wrong benchmark to measure what their Obamacare payments should have been.
After the error, the Treasury Department decided it wouldn’t bother to try to collect the overpayments, leaving tens of thousands of Obamacare customers with a bonus, courtesy of their fellow taxpayers.
“I can understand the IRS taking the position that recovering the $8.3 million overpaid because of defective 1095-As in the first year of the program was not their highest priority given the more than $400 billion that the IRS loses every year from uncollected taxes elsewhere,” said Timothy Jost, a law professor at Washington and Lee University in Virginia who closely tracks the health care law.
Under the Affordable Care Act, customers who overestimate their annual income get a bigger refund at tax time, because they didn’t get enough in federal subsidy to help them pay for coverage they purchased on the law’s web-based insurance exchanges.
Those who underestimate their actual income must pay back subsidy they didn’t deserve.
Obamacare customers use information off a form known as the 1095-A to reconcile the amount of federal tax credits they received against what they actually earned.
But because of what the administration said was a flaw in computer coding, about 800,000 of the forms had a wrong subsidy calculation. Also, Covered California said 100,000 of its customers received 1095-A forms with errors and 50,000 more didn’t receive the form, according to the IG report.
Federal and state officials scrambled to send out new forms, but it was too late in some cases.
The Treasury decided it would not try to recoup the amount it overpaid by forcing affected customers to file an amended return, saying it wanted to “mitigate any harm to tax filers,” although Obamacare customers who were shortchanged could re-file.
The 2015 filing season marked the first time that American taxpayers had to address their health care status on their returns.
While most people just had to check a box saying they were covered, others had to pay a tax penalty for flouting the “individual mandate” requiring most Americans to hold health insurance, or else claim an exemption from the rule.
Overall, the inspector general’s report said the government properly calculated the tax subsidy in 93 percent of the 2.6 million cases it examined.
The inspector general’s office said it is working with the IRS to sort out discrepancies in calculating subsidies tied to 150,000 returns, though it did say the agency incorrectly calculated subsidy amounts for nearly 28,000 returns because of “computer programming errors.”
In response, IRS management said it would take a look at the those returns and “prioritize them against existing workload demands and resource constraints so that they may be addressed accordingly.”