Executive Order 13765, issued in 2017, is aimed at minimizing the economic burden of the Affordable Care Act. However, the IRS has indicated that this doesn’t give the Service the authority to change the tax treatment of lump-sum Social Security benefits with respect to the premium tax credit (ILM 201949001). Here’s the problem: When a taxpayer receives a lump-sum payment of Social Security benefits, there’s a tax law that lets the person choose to report them in the year to which they relate rather than in the year in which they were received. This becomes an issue in figuring household income, which is used to determine eligibility for the premium tax credit.
The Tax Court clearly said that lump-sum Social Security benefits are factored into household income in the year in which they are received, even if partially subject to income tax in a previous year (Johnson, 152 TC No. 6 (2019)). And now the IRS has said it must do the same; the Service does not have authority to do anything else. The IRS cannot ignore the statutory language of Code Sec. 36B, which governs the premium tax credit.