IRS Says It Needs $490 Million More to Implement Obamacare

The IRS on Tuesday told Congress it would like an additional $490.4 million in the next fiscal year to implement the Affordable Care Act, also known as the ACA or Obamacare.

"This additional funding, the majority of which is for required information technology upgrades, will allow the IRS to increase efforts to ensure compliance with a number of tax-related provisions of the ACA, including the premium tax credit and individual shared responsibility provision," IRS Commissioner John Koskinen said in prepared remarks to a Senate Appropriations subcommittee on Tuesday. "The funding will provide enhanced technology infrastructure and applications support, and allow necessary, major modifications to existing IRS tax administration systems."

IRS Commissioner John Koskinen said Tuesday that the IRS wants $2 billion more in funding next year — about one quarter of that would go to implement Obamacare. Image: AP Photo/Susan Walsh

"A portion of the funding also addresses new audit requirements related to the employer shared responsibility provision," he added.

The Obama administration has warned for months that Obamacare will complicate the tax returns of thousands of people who buy insurance under the law. For example, the law gives people discounts when they buy health insurance if their income is low enough, but the IRS is charged with assessing people's actual income at the end of the year to see whether they received the right amount of subsidy. In many cases, people are discovering they have to repay some of the subsidies they received.

On Wednesday, the Supreme Court will hear oral arguments in a case dealing with whether the Obama administration improperly interpreted the law to allow for billions of health insurance subsidies to be handed out to millions of people. Republicans are already pondering legislation to help people if the court finds those subsidies are not allowed.

Another tax complication related to Obamacare is the fine, or "shared responsibility payment," that Obamacare assesses against people who don't buy health insurance. The administration has said it would set up a new enrollment period later this month to help people avoid that tax.

Koskinen delivered the news that the IRS needs more Obamacare funding as part of a statement that said the IRS overall is starved for funds, and needs $2 billion more to do it's job the way it wants to do it. Koskinen said IRS funding has been cut by $1.2 billion over the last 5 years, and that it's funding level is now $10.9 billion in the current fiscal year.

"The IRS is now at its lowest level of funding since FY 2008," he said in his prepared testimony. "When inflation is taken into account, the current funding level is comparable to that of 1998."

At the same time, he said the IRS has seen a 23 percent increase in tax filers.

The IRS has seen cuts over the last few years in large part because House Republicans have pared back the budget in retaliation for the targeting of conservative groups seeking tax-exempt status. That has led to steady cuts and freezes across the agency for the last few years — this year, the agency is operating with $346 million less than what it had the year before.

Koskinen said $1.3 billion of the $2 billion it wants would help the IRS "make strategic investments to continue modernizing our systems, improving service to taxpayers, and reduce the deficit through more effective enforcement and administration of tax laws." That includes hiring more auditors and spending money on information technology.

Another $667 million would help the IRS enforce tax laws to reduce the tax gap, or taxes that are assessed but not collected.