Dear Friends & Colleagues,
Domestic violence victims face unique challenges navigating the premium tax credits under the ACA. In December 2013, I described the limited ability of victims of domestic violence to apply for premium tax credits if they are still married. As noted, married individuals must generally file a joint return in order to receive the credits. This poses obvious problems for domestic violence victims who may have difficulty filing a joint return with their abusive spouse. To its credit, the IRS acknowledged the domestic violence issue in the preamble to the final tax credit rule back in May 2012. My December email explained that the IRS was still accepting comments on this issue and referenced one or two potential solutions.
The IRS has helpfully clarified that relief is available to some married individuals who are victims of domestic violence. However, this only applies to individuals who are (1) deemed to be unmarried under the IRS rules (notwithstanding their actual marital status) and (2) meet the criteria to file as head-of-household. The IRS spells out in Publication 501 those situations in which married persons are considered unmarried for tax purposes; it also explains the head-of-household filing rules.
How easy is it to find this information from HHS? Not very. Searching for “domestic violence” at healthcare.gov site will generate information as to how such individuals can apply for an exemption to the requirement to have minimum essential coverage. These searches at healthcare.gov do not yield any information on how to apply for and enroll in the premium tax credits under the IRS guidance. Hence the reason we wanted to share this information with you today.
Does the IRS clarification “fix” the challenges for victims of domestic violence trying to apply for premium tax credits? No, and for two reasons. First, HHS’s application form asks whether an applicant is married – and does not allow applicants to indicate that they are applying as head-of-household. In effect, HHS’s application process nullifies the IRS guidance. Until HHS corrects this oversight, the IRS’s good faith efforts here will have been in vain.
Second, the IRS’s fix only applies to a subset of domestic violence victims: those considered unmarried for tax purposes who can file as head of household. For you to be deemed unmarried, the abusive spouse cannot have lived in your home for the last six months of the tax year and you must pay for half the cost of the upkeep of your home. Additionally, your home must have been the main home for your child, stepchild, or foster child for more than half the year (with a few exceptions for children who are newborn, deceased, kidnapped, etc.) – and you must be able to claim the child on your return. And you must then file as head-of-household as allowed under the applicable rules. Other rules also apply. Consequently, this fix does not help childless adults who are victims of domestic violence or individuals who recently escaped abusive relationships; these individuals will continue to be ineligible for the credits if they are unable to file jointly.
An example illustrates the potential for significant ACA-related tax consequences on spouses who are victims of domestic violence. Two spouses apply for and receive the advance payments of the tax credits in January 2014. Seven months later, one spouse leaves the other due to domestic violence – though, because of state family law divorce laws, the two remain legally married as of December 31, 2014. Under the current tax credit rules, these two individuals must repay 100% of the advance tax credits that were paid on their behalf throughout the year if they file as Married Filing Separate (which may be necessary in their situation). That could be a considerable tax liability for an individual who by definition is already in distressed circumstances.
Unfortunately, this remains a large policy problem and a critical tax concern. The CDC estimated in 2003 that “…1.3 million women are victims of physical assault by an intimate partner each year.” This may be an underestimate: more recent data from the 2010 National Intimate Partner and Sexual Violence Survey finds that, “The prevalence of severe physical violence victimization by an intimate partner in the 12 months prior to taking the survey was 2.7% among women compared to 2.0% among men.” And these statistics do not include sexual violence, which is reported separately.
We continue to monitor policy developments in this area and will keep you updated. Please feel free to contact me at firstname.lastname@example.org or 615-761-6929 if I can be helpful in any way.