On Monday, the IRS announced that individuals who received more exchange-based subsidies than they were eligible for because they accidentally over estimated their income might not have to pay penalties in 2014, although they will still have to pay back the difference of what they should have received. This will be the first year that individuals will reconcile their advance premium tax credits (APTCs) and potentially be faced with paying back any subsidies they weren’t actually eligible to receive. The penalty relief will be for those who accidentally underestimated their income last year, but not for those who have incomes that exceed 400% of the federal poverty level or those who took a subsidy for which they were not actually qualified to receive since they were offered affordable and minimum value employer coverage. In addition to penalty relief, the IRS announced that individuals who underestimated their subsidies, and received less APTC than their income allowed, may have their tax refunds increased when they reconcile, to make up for the difference of what they were owed.

The IRS specified that penalty relief will only be allowed if the taxpayer is able to prove that the overpayment was due to reasonable cause and not willful neglect. The IRS is granting this exemption as some consumers may have received excessive subsidies and underpayments of taxes due to a change in circumstances during the year. In order for the individual to qualify for their penalties to be waived, the taxpayer must be current with their filing and payment obligations and report the amount of the excess advance credit payments on a 2014 tax return.

NAHU has pressed the Administration repeatedly on the subsidy repayment issue. We are concerned both with many consumers unknowingly taking on more subsidies than they were eligible for due to income variations and also for consumers who received subsides when they were eligible for an employer-based plan that met both the affordability and minimum value tests. Without an adequate employer verification backstop, consumers have been able to sign up for coverage and subsides that they otherwise should not be eligible for and could be subjecting themselves to tens of thousands of dollars in taxes, to pay back the tax credits they received during the year and shouldn’t have received.

The IRS also announced that as many as one in five tax filers will be able to claim an exemption to the individual mandate penalty this year. Between 3 and 6 million taxpayers will be required to pay the fine this year--$95 per person or one percent of income, whichever is greater. Tax filers will use form 1095A to report their exchange-based coverage on their taxes, which is being sent out this week to individuals who signed up through healthcare.gov or their state-based marketplaces.