On the Hill: An Address and a Retreat. The President will deliver his final State of the Union Address tomorrow evening, with a look a back on accomplishments and a look to the future and its challenges. House and Senate Republicans will look to the future too, at their retreat this week. They’ll head to Baltimore and consider an agenda under a new Republican president, including comprehensive tax reform, international tax reform, tax administration, and an alternative to the Affordable Care Act. TPC’s Howard Gleckman considers what Congress and President Obama could accomplish together in the meantime. The short answer: Not much.
The IRS says ACA tax filing in 2015 went smoothly, for the most part. IRS Commissioner John Koskinen, in his letter to Congress, said that despite service issues and some tax return discrepancies, the 2015 tax filing season as it relates to the Affordable Care Act was generally successful. The IRS reports that 30 percent of households claiming tax subsidies under the ACA, or about 1.4 million, did not properly account for their credits.
What might not be smooth in 2016: Personal interactions with the IRS. In her annual report released last week, National Taxpayer Advocate Nina Olson warns that “Reading between the lines of the IRS future state vision, the IRS appears to replace traditional IRS employee-to-taxpayer interaction with online and third-party interactions… the vision essentially eliminates IRS-taxpayer personal interaction except in the context of enforcement actions.” By the way, if you get a phone call from a third-party claiming to be working on behalf of the IRS—be extra vigilant.
Why shouldn’t the IRS ban all rule-breaking taxpayers from taking future tax breaks? TPC’s Howard Gleckman considers the expanded two-year ban on some taxpayers improperly taking the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit. These low-income families are barred from claiming future credits if they incorrectly claim the subsidies due to “reckless or intentional disregard” of the rules. Thing is, trade associations, multinationals, and hedge funds sometimes recklessly or intentionally disregard rules—but face no prospective punishment.
Some children face “kiddie tax” provisions. TPC’s Jim Nunns explains in the latest TPC Tax Fact. The US usually taxes dependents in the same way it taxes nondependent taxpayers, except for special standard deduction amounts. While 9 million children filed dependent returns, only about 360,000 paid the kiddie tax. Only 3,000 children reported incomes of $200,000 or more, but they accounted for half of all kiddie tax payments.
In California, Governor Jerry Brown needs to extend a tax on some health plans. If the state does not change its tax structure for managed care plans, it could lose federal support of Medi-Cal, its version of Medicaid. In his new budget, Governor Brown proposes a health plan tax that would generate about $1.35 billion. Health plans would pay at varying rates based on enrollment.
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- © Urban Institute, Brookings Institution, and individual authors, 2016.