IRS will soon have to take on a big new job:
Managing major parts of health care reform once the landmark legislation is finally enacted. The Service will grow by leaps and bounds as it puts a slew of tax changes related to health care into effect and sets up systems to enforce the rules. How well the IRS can handle this increased workload hinges on whether lawmakers are willing to give the OK to billions more in agency funding for years to come.
Take a look at what IRS will take charge of: Enforcing a mandate on individuals. By 2013 or so, most will be required to show they have health care coverage or pay a penalty when filing their returns. IRS will have to match reports from insurers with taxpayers’ returns to make sure that those filers who don’t have coverage pay the penalty when they file their taxes.
Remitting affordability credits to help low incomers pay for coverage that they will purchase through state-run exchanges, beginning around 2013. IRS is expected to be the middleman here…taking information from the exchanges about the amount of credit that individuals qualify for and sending those amounts directly to insurance companies. The exchanges, in turn, will get income information from IRS to verify that those who apply for credits fall below the income thresholds. Policing requirements for employers.
IRS will be tasked with collecting fees from large and mid size companies that don’t provide affordable coverage to workers. The fees are designed to offset the cost of the tax credits being given to low incomers. Implementing a new excise tax on high cost health plans, which lawmakers are expected to retain in the final health care bill to help defray the cost of reform. Checking tax credits claimed by small firms.
Those offering a health planto employees will qualify for a new income tax credit that will help offset the cost. Many in Congress worry IRS won’t be up to the task, even with extra funds. The concern: The Service is being asked to manage a huge social welfare program… something that agency staff have no experience with and have not been trained for.
Critics also point to IRS’ spotty management record on similar programs. Among them: An existing credit for health coverage for displaced workers. A sampling of 2006 return filers who got the credit found that nearly three quarters failed to attach documentation and may not have qualified, but IRS didn’t nab them. The earned income credit. Despite increased document matching, the IRS still misses most of the more than $10 million in bogus claims a year, Treasury says.
But the IRS isn’t the only problem here:
Congress shares the blame. For example, the Service is taking heat for allowing a slew of bogus refund claims for the first time home buyer credit. But that snafu would likely have been avoided if Congress had written the law to require taxpayers to attach settlement statements to their tax returns. The recently enacted credit extension contains the requirement.
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