GovGuam Allegedly Cannot Afford Obamacare Tax Credits

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Law means $74 million in tax credits could be claimed yearly

By Gaynor Dumat-ol Daleno

HAGÅTÑA, Guam (Pacific Daily News, Nov. 1, 2013) – The government of Guam could face a class-action lawsuit from taxpayers and small business owners who miss out on tax credits under President Obama's Affordable Care Act (ACA).

Banking and Insurance Commissioner Art Ilagan said this week that the possibility of GovGuam getting sued remains a concern because the local government can't afford the $74 million a year in tax credits that consumers and small business owners can apply for under the federal health-reform law.

The tax credits can be claimed through the health care marketplace that the federal government opened recently to allow people to choose various health-insurance options and apply for tax credits to lower their cost of health insurance.

GovGuam opted out of the health-insurance marketplace because Guam can't afford the costs associated with the tax credits and running the health care exchange, Gov. Eddie Calvo informed the federal government on Oct. 1.

In the nation, taxpayers who don't use their health-insurance Premium Tax Credit to lower their monthly premium can claim the tax credit on their tax year 2014 income tax returns that could give them a tax refund, according to the Internal Revenue Service (IRS).

"This will either increase your refund or lower your (income tax balance) due," according to the IRS.

Ilagan said the health-insurance Premium Tax Credit as a possible liability to GovGuam was similar to the federal Earned Income Tax Credit (EITC). The local government didn't pay the EITC for years, claiming it was an "unfunded federal mandate" -- until class-action lawsuits and court orders forced GovGuam to pay.

Guam's Banking and Insurance Commission has received clarification from the IRS that the Premium Tax Credit won't apply to Guam taxpayers if the health-insurance exchange isn't available on Guam, minutes of the September commission meeting show.

But, in light of the local government's experience with the EITC lawsuits, that assurance doesn't eliminate the commission's concern about getting sued, Ilagan said.

Previous lawsuits

The EITC lawsuits led to the local government agreeing to pay a $90 million settlement, Pacific Daily News files show.

In 2007, GovGuam started paying the EITC, which is meant to keep low-income workers employed by giving them the tax credits that convert into tax refunds if they don't owe taxes.

Guam's income-tax system mirrors the U.S. Internal Revenue Code.

GovGuam could face another lawsuit if the advance Premium Tax Credit is not paid out, Ilagan has said.

Federal Judge Frances Tydingco-Gatewood, in a 2007 order, called attention to the local government's years of failure to pay the EITC.

Mike Phillips, the class-action lead counsel for settlement purposes on the EITC lawsuits, said yesterday each of the cases he's been involved in concerning Guam's tax system -- and how it mirrors the federal tax laws -- leads him to conclude that Guam can't pick and choose which federal tax credits apply or don't apply to Guam -- until the local government delinks from the federal tax code.

But Phillips added the new programs that have federal tax-credit implications are far more complicated, and there are various interpretations requiring expertise beyond his experience.

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