In Depth Tax forms

Published on January 12th, 2016 | by Daniel Castro

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Machine-Readable Tax Credit Data Could Cure An Obamacare Headache

One of the many changes brought about by the Affordable Care Act was the creation of the premium tax credit, or PTC, a refundable credit that helps individuals and families with low or moderate income afford health insurance purchased through the federal health exchange marketplace or one of the state exchanges. At the end of each calendar year, individuals who have purchased health insurance through an exchange receive a 1095-A tax form detailing the amount of the credit they have received. Individuals must then include the amount of tax credit they received that year when they file their income taxes with the IRS.

There is a certain irony to all of this. After all, one government agency is sending millions of Americans a form containing information which they then have to transcribe to another tax form and send right back to a different government agency. So why not cut out the middleman?

Indeed, other tax forms, such as W-2s from employers’ payroll processors and 1099s from financial institutions, not only are often made available online to download, but also are made available in a machine-readable format so that individual tax filers do not have to do any data entry. Instead, online tax preparation software imports the data from these systems and enters it on individuals’ tax forms automatically. This type of automation helps prevent errors, speeds processing, and makes filing more convenient for individuals.

Unfortunately, neither the federal nor the state health exchanges are providing information from these forms to tax filers in a machine-readable, electronic format. In fact, a number of exchanges are still sending paper forms through the mail, an unnecessarily slow and costly process. Expenses quickly add up, especially when you consider that approximately 17 million people are eligible for this tax credit. These paper forms are a reminder of why it is still necessary for 21st century government reformers to insist that the default for government be digital—it is too easy for government agencies to slip back into bad habits.

Fortunately, the situation is changing, just not fast enough. Last year, Americans filed 124 million individual income tax returns electronically, and this total is certain to grow again this year. But while the IRS has been successful at increasing the number of electronic filing through strategic partnerships with the private sector, it should now work to ensure that data from supplemental tax forms, such as the PTC credit or Social Security benefits, are available in machine-readable formats so that American can fully benefit from electronic tax preparation and filing. And if government agencies do not digitize this data willingly, Congress should intervene. While these changes will not make most Americans enjoy paying taxes any more than they do today, automating this process will at least make tax season go a bit more smoothly.

Image: Camilo Rueda López.

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About the Author

Daniel Castro is the director of the Center for Data Innovation and vice president of the Information Technology and Innovation Foundation. Mr. Castro writes and speaks on a variety of issues related to information technology and internet policy, including data, privacy, security, intellectual property, internet governance, e-government, and accessibility for people with disabilities. His work has been quoted and cited in numerous media outlets, including The Washington Post, The Wall Street Journal, NPR, USA Today, Bloomberg News, and Businessweek. In 2013, Mr. Castro was named to FedScoop’s list of “Top 25 most influential people under 40 in government and tech.” In 2015, U.S. Secretary of Commerce Penny Pritzker appointed Mr. Castro to the Commerce Data Advisory Council. Mr. Castro previously worked as an IT analyst at the Government Accountability Office (GAO) where he audited IT security and management controls at various government agencies. He contributed to GAO reports on the state of information security at a variety of federal agencies, including the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC). In addition, Mr. Castro was a Visiting Scientist at the Software Engineering Institute (SEI) in Pittsburgh, Pennsylvania where he developed virtual training simulations to provide clients with hands-on training of the latest information security tools. He has a B.S. in Foreign Service from Georgetown University and an M.S. in Information Security Technology and Management from Carnegie Mellon University.



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