Congressman Lloyd Doggett scored a huge victory yesterday for survivors of domestic violence and for working out kinks in the Affordable Care Act (“ACA”). Last week, Representative Doggett, along with 76 other U.S. representatives, wrote the U.S. Treasury, asking it to carve out an exception to certain tax filing requirements for survivors of domestic violence when they attempt to claim the Premium Tax Credit (PTC) available to lower-income individuals under the ACA.
Today, the IRS granted their request, issued guidance concerning the exception, and promised to promulgate Treasury regulations governing the exception later this spring.
So, why was an exception necessary? And why for survivors of domestic violence?
The PTC is a tax credit designed to make the mandatory purchase of health care more affordable for those who have lower to moderate incomes and who purchase their health insurance under the ACA through the Health Insurance Marketplace. However, until today, as a practical matter, the PTC was not available to everyone.
To see who was restricted from affordable health care, read below the jump. Until today, a married person who wished to claim the PTC and offset part or all of the cost of health care, was required to use the filing status of Married Filing Jointly on his or tax returns. Married persons using the status of Married Filing Separately could not claim the credit.
This left survivors of domestic abuse at a serious disadvantage, as the Treasury Department noted today in its reply to Congressman Doggett:
“As you note, individuals who are legally married are generally required to file a joint income tax return to claim the premium tax credit, including any advance payments. This is a common requirement for receiving means-tested tax benefits. For victims of domestic abuse, getting in contact with a spouse for purposes of filing a joint return may be traumatic, dangerous, or prohibited by a restraining order.”
Moreover, as the IRS noted in the guidance it released today, the victim may not have the financial means to furnish over half the cost of a household, or the victim may not have a dependent child, fact patterns that would have changed the application of the rule prior to today.
In its reply to Rep. Doggett, the Treasury Department concluded:
“Accordingly, today the Treasury Department and the IRS are releasing guidance providing that a married individual who is living apart from his or her spouse, and who is unable to file a joint return as a result of domestic abuse, will be permitted to claim a premium tax credit for 2014 while filing a tax return with a filing status of married filing separately.”
While yesterday's news was a big victory for a class unfairly marginalized by a law which had a massive rollout and unintended – yet inevitable – problems, for regular observers of the IRS, it should not come as much of a surprise. For all of its problems and – sometimes, deservedly – fearsome reputation, yesterday's move is not much, if any, of a philosophical departure for the IRS. Yesterday's ruling was not the IRS' first foray into the intersection of taxes and domestic violence.
In trying to apportion tax liability according to principles of fundamental fairness, the IRS offers innocent spouse relief. Innocent spouse relief is available to those who would be liable for the tax burdens of their spouses, but for whom it would be a miscarriage of justice to apply that tax liability. While victims of domestic violence are not technically entitled to innocent spouse relief, the IRS does offer equitable relief to such survivors, and the form to claim equitable relief is the same.
Yesterday's guidance should be a watershed event. As Rep. Doggett said after learning the news:
“Domestic abuse victims finally have some assurance that they can access tax credits to make health insurance affordable without relying upon those who abused them. Today's dual Administration announcement means that they have two additional months to use this information in choosing the best insurance policy.”