IRS Issues Tax Credits for Domestic Abuse Victims, Self Employed

Aug 14th 2017
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Newly issued IRS regulations govern the insurance premium tax credits under the Affordable Care Act for victims of domestic abuse and self-employed taxpayers.

The final regulations took effect July 24 and also remove temporary rules issued in 2014.

Domestic Abuse Victims

Taxpayers who seek eligibility for a premium tax credit under Internal Revenue Code Section 36B must meet criteria under Section 36B(A), which state that the person who is filing must be an “applicable taxpayer.” Under Section 36B(c)(1), that means the taxpayer must have a household income for the tax year that equals or exceeds 100 percent but doesn’t exceed 400 percent of the poverty line for the taxpayer’s family size, can’t be claimed as a dependent by another taxpayer, and who files a joint return if married.

The new regulations allow an abused or abandoned married taxpayer to satisfy the Section 36B(c)(1) joint filing requirement if the taxpayer files as married but filing separately if the taxpayer is not living with the spouse when the tax return was filed, the taxpayer can’t file a return because the taxpayer is a victim of abuse or abandonment, and the taxpayer certifies that he or she meets the requirements for claiming premium tax credits under the “married filing separately” status.

But the final rules don’t offer a definition of “reasonable diligence” in trying to locate a spouse. A “one size fits all” definition is not appropriate for situations involving spousal abandonment because the facts of each situation are unique,” the regulations state.

Trying to define “reasonable diligence” could inadvertently prevent a taxpayer from meeting that requirement who warrants relief from it “solely because the definition did not contemplate the taxpayer’s particular circumstances,” the regulation states.

The regulations also don’t broaden the “unable to locate” rule to include situations in which a spouse poses a threat to a spouse claiming relief. That’s because the definition of domestic abuse, which includes psychological or emotional abuse and efforts to intimidate the victim, already addresses that.

Taxpayers also won’t be able to avoid the joint filing requirement for more than three consecutive years.

Self-Employed Taxpayers

The temporary regulations from 2014 (Section 1.36B-4T(a)(3)(iii)(C) included a particular formula for calculating the income of self-employed taxpayers who take a deduction for paid health insurance premiums. But that calculation omitted a rule governing situations in which the Section 162(1) deduction should be limited to the taxpayer’s income earned from the business that is the basis for the health insurance coverage.

The final rules correct that.

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