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How a 27-Year-Old Math Whiz Found a Big Flaw in an IRS Tax Formula

From TIME - April 16, 2018

Most people chat with their Uber driver about traffic or the weather. Sam Ferguson, on the other hand, spent one January Uber ride diving into tax mathand unearthed a big problem for many Obamacare customers.

Ferguson, 27, a math Ph.D student at New York University, was on a trip to Iowa when he got to talking with his Uber driver about their jobs. The driver told Ferguson that he had trouble calculating the premium assistance he was eligible for under the Affordable Care Act, also known as Obamacare. People without job-based coverage making up to $48,560 are eligible for government help paying their monthly health insurance bill.

The driver followed the instructions provided by the IRS, but struggled to come up with a definitive amount for his total premium tax credit. This number goes on Form 8962, which Obamacare customers must fill out when they file their federal income taxes, due this year on April 17.

Ferguson promised to look into the issue and report back, thinking it would be a simple matter of double-checking his drivers math and looking for tax software glitches. But it turned into a months-long odysseyinvolving reams of IRS publications, a supercomputer, a Google engineer, and a former tax attorney turned Congressional candidate.

As it turns out, Ferguson had stumbled onto a known, but only obliquely acknowledged, problem with the IRS subsidy-calculation methodology. It affects an estimated 100,000 households, or up to 500,000 Americans, according to Fergusons estimates, forcing them to pay more than they should for health insurance.

Stuck in a Loop

The problem goes all the way back to the passage of the Affordable Care Act in 2010. Although the health insurance law is internally consistent, Ferguson says, plunking it down on top of existing tax law created a circular relationship between two key numbers.

Line 29 of the 1040 tax form asks self-employed workers for their health insurance deduction. In order to determine this numberfor Obamacare consumers, its typically the sticker price of your health insurance minus any government assistanceyou need your total premium tax credit from Line 24 of Form 8962. But in order to get your total premium tax credit, you need Line 29 from Form 1040. Its a loop where the output affects the input, says Leiden Cervantes, 23, a math student at the University of Iowa and the friend whom Ferguson was visiting back in January.

We are aware of the topic, wrote Mark Ciaramitaro, vice president of tax strategy at H&R Block, in an email message.

The IRS has also acknowledged the circular relationship, though it did so in a procedural documentnot something that stumped taxpayers would generally uncover if left to their own devices. In another document, the IRS presented two solutions that taxpayers can use to escape this infinite loop and arrive at their correct premium calculation.

The IRS put a lot of work into creating the different methods to resolve the circular calculation around the premium tax credit for self-employed taxpayers, Ciaramitaro wrote.

These solutions do in fact workmost of the time. The Uber drivers case was one of the exceptions. (Through Ferguson, the driver declined an interview request from MONEY, citing concerns about his immigration status.)

Fixes Fail

Asking the IRS to Change

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