Overpaying the Affordable Care Act Individual Mandate

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According to a report from the National Taxpayer Advocate, more than 300,000 taxpayers overpaid the Individual Shared Responsibility Payment (ISRP) for health insurance on their tax returns processed through the end of April 2015. Most of those taxpayers were charged the ISRP, also known as the individual mandate, because they did not have health insurance that complied with the Affordable Care Act during all of 2014.Many taxpayers who paid the penalty didn’t actually owe it as they were eligible for an exemption due to low income. The report found that the average ISRP overpayment was a little over $110 per return.

The National Taxpayer Advocate recommended that the IRS issue refunds to the affected taxpayers without requiring them to file amended returns. Since the majority of taxpayers rely on paid preparers, most would probably spend more than the $110 average overpayment amount in prepare fees if amended returns were required.

The Taxpayer Advocate suggested that the IRS make the adjustment on its own, without the need for taxpayers to respond to a notice. “By placing the burden on taxpayers, some taxpayers may not respond and will end up paying more tax than they owe.” The IRS Office of Chief Counsel advised the IRS that the agency has the legal authority to return the overpayments, but The IRS has yet to announce what procedures it will require taxpayers to follow to obtain their refunds. The Taxpayer Advocate acknowledged that the IRS is operating in a low-budget environment with limited resources for developing procedures to refund the overpayments in a proactive manner.

How to determine if you overpaid the ISRP? If your household income in 2014 was below the threshold for triggering the penalty and you included an amount on Line 61 of Form 1040, you should be eligible for a refund of the amount included on Line 61. The IRS is considering sending “soft notices” to affected taxpayers and adjusting accounts in collection proceedings by the amount of the overpaid tax, but it is likely that they’ll continue stalling on issuing refunds for taxpayers who are not in collection status. It is left to the affected taxpayers to decide if it is worth the time and expense to file amended returns to request refunds.

Looking ahead to 2015 filing season, there is an online tool available to help taxpayers estimate the ISRP they may have to pay if they did not have minimum essential coverage during the year. The Am I Required to Make an Individual Shared Responsibility Payment? tool is available through the IRS website. In order to use the calculator, you will need your filing status, number of dependents, adjusted gross income, and adjusted gross income of your dependents. The calculation is estimated to take approximately fifteen minutes. The tool provides only an estimate of the taxpayer’s ISRP. To determine the payment when filing an actual return, instructions for completing Form 8965 should be used.

By Janet Berry-Johnson, CPA