The Internal Revenue Service said it will waive some penalties related to advance payments of the premium tax credit for health insurance purchased under the Affordable Care Act in 2014.
Under the ACA, taxpayers who get an advance payment of the credit are required to reconcile the credit with their actual income during 2014 and pay back part of the credit if their financial circumstances improved during the year and they didn't tell the government in time.
Notice 2015-9, issued by the IRS on January 26, provides "limited relief" for taxpayers with a balance due on their 2014 income tax return after they reconcile the credit. Taxpayers who qualify will get relief from the penalty for late payment of a balance due under tax code Section 6651(a)(2). They will also get relief from the penalty for underestimated tax under Section 6654(a).
To get both types of relief, taxpayers must be otherwise current with their filing and payment obligations and report the amount of excess advance credit payments on a timely filed 2014 tax return. To get the Section 6651(a)(2) relief, they also must have a balance due as a result of credit payments.
The IRS said the relief is only available for the 2014 taxable year. It doesn't cover underpayments of the individual shared responsibility payment—the amount taxpayers must pay the government if they don't have the level of insurance coverage required by the ACA. Those payments are required under Section 5000A. According to the IRS, underpayments of these shared responsibility amounts don't qualify for relief under Sections 6654(a) or 6651(a). This is because they aren't subject to penalties under either of those code sections, the agency said.
The IRS said under Notice 2015-9, taxpayers will be treated as current with their filing and payment obligations if, as of the date they file their 2014 income tax returns, they:
·?have filed, or filed an extension for, all current required federal tax returns; and
·?have paid, or entered into, an installment agreement that isn't in default, an offer in compromise, or both to satisfy a federal tax liability. If a taxpayer hasn't paid a tax because of a "genuine dispute" and the tax liability hasn't yet been determined, the amount of tax in dispute will be treated as current while the disagreement is resolved, the IRS said.
The IRS said when a taxpayer fails to pay tax, it automatically assesses the Section 6651(a)(2) penalty and sends a notice demanding payment. Taxpayers who receive the notice should send a letter to the address listed in the notice that contains the statement, "I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit."
Taxpayers who file their returns by April 15, 2015, will be entitled to relief under Notice 2015-9 even if they haven't fully paid the underlying liability by the time they request relief, the IRS said. Those who file after April 15, 2015, must fully pay the underlying liability by April 15, 2016, to be eligible for relief under the notice. Interest will accrue until the underlying liability is fully paid, the notice said.
In order to get relief from the estimated tax penalty, taxpayers must check box A in Part II of Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, and complete page 1 of the form. Then taxpayers should include the form with their return, along with the statement, "Received excess advance payment of the premium tax credit."
The IRS said taxpayers don't need to attach documentation from a health insurance exchange, explain any circumstances under which they received an excess advance payment of the premium tax credit, or complete any page other than page 1 of the Form 2210.
Taxpayers also aren't required to calculate the amount of the penalty in order for it to be waived.
Notice 2015-9 is scheduled to be published Feb. 9 in Internal Revenue Bulletin 2015-6 and is also available here.
