Chairman Johnson, Ranking Member Carper and Members of the Committee, thank you for the opportunity to appear before you today to update you on the work that the
I can report that with the exception of the continued erosion of taxpayer services due to budget cuts, the 2015 filing season has gone reasonably well, generally and as it relates specifically to taxpayers affected by the ACA provisions mentioned above. I will provide further details on the filing season later in this testimony.
I would note that all the work the
EARLY ACA IMPLEMENTATION EFFORTS
Another ACA implementation effort by the
In particular, the
Separate from the process of providing limited tax return data to the Marketplace for eligibility determinations, the
After the Marketplace determines a predicted annual income for the applicant, and without identifying the applicant, the Marketplace submits a few data elements to the
The systems and processes the
During the 2015 open enrollment period, the
FILING SEASON PREPARATIONS
Let me turn now to our preparations for the 2015 filing season. Prior to this filing season, the
With regard to the specific provisions of the ACA, the law allows eligible individuals to choose to have their insurer receive advance payments of the premium tax credit, the amount of which is based on a determination made by the Marketplace. Taxpayers who opted for advance payment of the credit during 2014 needed to reconcile that amount with the actual credit they were eligible to claim on their 2014 return.
When filing their returns, these taxpayers calculated the actual credit they qualified for based on their actual 2014 income using the new Form 8962, Premium Tax Credit, which they filed with their return. If the actual premium tax credit was larger than the sum of advance payments received by their insurer during the year, this increased the taxpayer's refund or reduced the tax liability. Conversely, if the actual credit was smaller than the sum of the advance payments, this reduced the taxpayer's refund or increased the tax liability, subject to a statutory sliding scale of income-based repayment caps.
In addition to helping individuals calculate the premium tax credit, the Marketplace information is important because it helps the
* Whether there is a record of anyone on the return having enrolled at a Marketplace (a basic requirement to claim the credit);
* Whether any advance payments made directly to the insurance company have been properly netted against the credit calculation; and
* If the tax return reports inaccurately high premium costs or inaccurately low advance payments as compared to the Marketplace data.
In some instances, enrollees received a Form 1095-A from the Marketplaces that needed to be corrected. In an effort to minimize the impact on taxpayers this first year, the
Along with the premium tax credit, the
The statute contains exemptions from the individual shared responsibility provision. An exemption applies for individuals who:
* Have no affordable coverage options because the minimum amount they must pay for the annual premiums is more than eight percent of their household income;
* Have a gap in coverage for less than three consecutive months; or
* Qualify for an exemption for one of several other reasons, including, but not limited to, having a hardship that prevents them from obtaining coverage.
Most individuals who qualify for an exemption and otherwise need to file a tax return must provide the exemption information with their returns. Taxpayers used new Form 8965, Health Coverage Exemptions, to claim an exemption from the coverage requirement, and needed to include that form with their 2014 tax return.
Individuals who did not have coverage in 2014, and did not qualify for an exemption, needed to make an individual shared responsibility payment. A worksheet was provided in the instructions for the calculation of the individual shared responsibility payment, but filers were not required to attach the worksheet to the tax return.
In general, the payment amount is either a percentage of the individual's income or a flat dollar amount, whichever is greater. The amount owed is 1/12th of the annual payment for each month that a person or the person's dependents were not covered and were not exempt. For 2014, the payment amount was the greater of:
* 1 percent of the person's household income that is above the tax return threshold for their filing status; or
* A flat dollar amount, which is
The individual shared responsibility payment is capped at the cost of the national average premium for the bronze level health plan available through the Marketplace for that year.
It is important to note that the
Along with building and improving our processes and systems, and developing and issuing new forms and instructions in advance of the filing season, a major component of the
Through a variety of channels, we explained to taxpayers that:
* The individual shared responsibility provision requires that they and each member of their family have qualifying health insurance, a health coverage exemption, or make a payment when filing their return;
* Taxpayers with health coverage indicate this by simply checking a box on the return, and no further action is required;
* For taxpayers who qualify for an exemption from coverage, most exemptions can be claimed when they file their return, but some exemptions must be obtained from the Marketplace; and
* Those who do not have qualifying coverage or an exemption for each month of the year need to make an individual shared responsibility payment with their return.
We also communicated about the filing requirements for the premium tax credit, explaining to taxpayers that they had to file a federal tax return if they received any advance payments of the premium tax credit in order to reconcile those payments, and that they needed to use the information on the Form 1095-A they received from the Marketplace to calculate the credit at the time of filing.
* Our website, IRS.gov, has a section that is devoted to the ACA (www.irs.gov/aca). This section contains answers to many questions about the tax provisions, as well as links that take persons to online ACA resources of other federal agencies;
* Thirty-nine YouTube videos addressing ACA issues were posted, including a series of question-and-answer sessions covering common taxpayer questions. We will continue to add additional videos, which also include videos in Spanish and American Sign Language;
* The agency increased its use of social media to help people learn about the major ACA tax-related provisions. For example, we shared more than 100
ASSESMENT OF THE 2015 FILING SEASON
Let me turn now to an assessment of the 2015 filing season, which began on schedule on
We opened the 2015 filing season on schedule despite the challenges we faced. I attribute this achievement to the dedication, commitment and expertise of the
Our experience with the 2015 filing season indicates that taxpayers have taken advantage of the help we are offering online. As of
Evidence thus far indicates that taxpayers affected by the tax-related ACA provisions generally have been able to fulfill their filing obligations, although given that this was the first year these two provisions affected the filing season, it was expected that taxpayers would have questions about them. We believe two factors had a particular impact on the relatively smooth taxpayer experience:
* First, as noted above, the
* The second factor was the use of tax preparation software for about 91 percent of all individual tax returns this filing season - either by the taxpayers themselves or by their preparers. As noted previously, the
Although return processing has gone smoothly, both in general and as related to the ACA, it should be noted that our level of customer service this filing season has been unacceptably low, both in person and on the phone, despite the best efforts of our employees. Our low service levels were the result of the budget cuts we have had to absorb. Funding for the agency has been reduced by
Since 75 percent of the
This year, we were forced to substantially reduce hiring of extra seasonal help we usually have during the filing season. As a result, our phone level of service at the start of the filing season was 54 percent, and dipped below 40 percent toward the end of filing season. That means more than six out of every 10 people who call could not reach a live assistor. That is truly an abysmal level of service.
As for in-person assistance, during the filing season we were very concerned about the reports we received of taxpayers lining up outside our
Looking ahead to next year, I am concerned that the 2016 filing season will be another challenging one. As we begin preparations for the next filing season, one complicating factor is the need for the
Another possible complication to the 2016 filing season involves the group of tax extender provisions that expired at the end of 2014. I am concerned about the possibility that
Chairman Johnson, Ranking Member Carper and Members of the Committee, thank you again for the opportunity to update you on the work the
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