IRS Sets Rules for Disclosing Tax Return Info under Health Care Law

The Internal Revenue Service has released the final regulations for how it will release tax return information to the Department of Health and Human Services to assess a taxpayer’s eligibility for help in buying health insurance coverage under the Affordable Care Act.

In TD 9628, the IRS noted that Section 6103(l)(21) of the Tax Code allows the disclosure of tax return information to assist the upcoming health insurance exchanges, now known as marketplaces, in performing certain functions of the health care reform law for which income verification is required, including determining the eligibility for the insurance affordability programs described in the Affordable Care Act, as well as to assist state agencies that are administering state Medicaid programs, children’s health insurance programs, and basic health programs.

For taxpayers whose income is relevant in determining eligibility for an insurance affordability program, Medicaid, CHIP, or BHP, Section 6103(l)(21) explicitly authorizes the disclosure of the taxpayer identity information, filing status, the number of individuals for whom a deduction is allowed, the taxpayer’s modified adjusted gross income, or MAGI, as defined under Section 36B of the Tax Code, and the taxable year to which the information relates or, alternatively, that the information is not available.

Section 6103(l)(21) also authorizes the disclosure of other information that might indicate whether an individual is eligible for the premium tax credit under Section 36B of the Code, or cost-sharing reductions under Section 1402 of the Affordable Care Act, and the amount of them.

The final regulations mostly adhere to the regulations proposed by the IRS last year, except that it added Social Security benefits to the list of items that can be disclosed to the Department of Health and Human Services in order to help enable the health insurance exchanges determine a taxpayer’s modified adjusted gross income. If the IRS provides HHS with the amount of Social Security benefits included in gross income under Section 86, an exchange or state agency will be generally able to determine the amount of Social Security benefits not included in gross income under Section 86, the IRS noted. This amount is one of the components of an individual’s MAGI. Eligibility for the premium tax credit, and advance payments of the credit, are based on the household income of the applicant, which is the sum of the MAGI of those individuals who comprise the household. As a result, providing the amount of Social Security benefits included in gross income, along with other items contained in the regulations, will help an exchange determine whether a taxpayer is eligible for the premium tax credit under Section 36B or cost-sharing reductions under Section 1402 of the Affordable Care Act, and the amount of the credit or reductions.

The other major change from the regulations proposed last year is to delete the reference to adoption taxpayer information numbers, or ATINs, from the list of identification numbers to be verified, because the Social Security Administration cannot verify them. Subsequent to the publication of the proposed regulations, the IRS recognized that requests relating to ATINs would not be received because individuals’ identification numbers would first be verified against SSA records. But since the SSA has no records of ATINs, the numbers cannot be verified and HHS will not request return information for individuals using ATINs. While the income of an individual with an ATIN may be relevant for determining household income and, therefore, eligibility for a health insurance affordability program, a health insurance exchange or state agency will instead need to use alternate verification procedures.