Half enrolled in health insurance via the Marketplace are paying back some advance credit.
February 24, 2015
Tax season is turning into a painful time to pay back some subsidy money received to offset health care insurance under the Affordable Care Act, as many tax filers are discovering.
The average amount to be paid back relating to the ACA advance credit has been $530 based on an early analysis by H&R Block.
As a result, many who were expecting super-sized tax refunds are discovering that their 2014 tax refunds will be far smaller.
The H&R Block analysis is based on early information for this tax season through about mid-February. So it's not official data but it provides an interesting glimpse to what taxpayers are going up against as they deal with the new rules that apply on 2014 returns relating to the Affordable Care Act, often called Obamacare.
H&R Block is the largest provider of consumer tax services offering both tax preparation and do-it-yourself tax services.
About 52% of those who enrolled in health insurance via the state or federal Marketplace are paying back a portion of the Advance Premium Tax Credit during this tax season, according to H&R Block's early data.
The reason? Many of those filers underestimated their household income for 2014 and now must repay a portion of the Advance Premium Tax Credit. The advance credit must reconcile with reality on the 2014 returns.
For many, 2014 tax refunds dropped by about 17% on average, again based on early filings, according to H&R Block.
The average refund for these taxpayers was almost $3,100 but was cut down to about $2,570. Tax filers who have larger refunds due to them tend to file early in the season.
"The level of payback of the Advance Premium Tax Credit is significant in that it's costing taxpayers a large percentage of their refund — a refund money of them count on to pay household expenses," said Mark Ciaramitaro, vice president of H&R Block health care and tax services in a statement.
Ciaramitro said that on average the taxpayers in this early filing group had received an Advance Premium Tax Credit of around $2,800. So paying back about $530 still amounts to a subsidy of about $2,270 on average.
"The reality is they got a substantial amount of government assistance," Ciaramitro said.
The credit must be reconciled with actual income, though, on federal income tax returns for that year.
If income estimates are too low, the consumer would receive a larger advance premium tax credit than should be the case for their actual 2014 income.
The credit directly lowers the cost of monthly health insurance payments; the advance is paid directly to the insurance company by the government.
But taxpayers run into trouble if their estimates for their projected income and family size turns out to be wrong. If somebody is jobless during part of the year but then obtains a well-paying job, they'd need to alert the Marketplace before the year is out to make adjustments to the advance credit for their health insurance premiums.
Taxpayers need to realize they could be responsible for paying back some or all of the subsidies received, depending on how their income and family situation changes during the year.
After reviewing its data of returns filed to date, H&R Block also concluded:
■The average tax penalty for not having required health insurance has been $172 so far on 2014 returns. That could be an indication that consumers are paying a larger penalty than a flat fee, which many had thought would only be $95 per uninsured adult in the household.
The penalty could be either about 1% of your household income after adjustments for 2014 or the flat fee, whatever is higher. Higher-income households would often pay that penalty based on a percentage of income.
For 2014, the flat fee is $95 for each uninsured adult in the household or $47.50 for each child under 18. The maximum penalty would be $285 for a family under that method.
Further into the tax season, H&R Block estimates, that some penalties could be higher because higher-income households can wait to file later in the season.
■Many taxpayers, according to H&R Block, appear to be answering truthfully about their insurance coverage and paying a penalty when not insured.
"We don't think they are just checking the box that they are covered when they are not," Ciaramitaro said.
■Taxpayers appear to be claiming exemptions when they can to avoid penalties for not being covered by health insurance.
Often, they are claiming exemptions directly on the tax return, according to H&R Block's data.
A more complicated route can be to try to claim hardship exemptions via the Marketplace. Hardship exemptions that need to be obtained from the marketplace, include homelessness, eviction, bankruptcy, foreclosure, domestic violence, experiencing a flood, death of a close family member, utility shutoff and unpaid medical bills.
But some exemptions, such as if coverage is not affordable, can be claimed more easily on the tax return.
For now, many who obtained health care coverage in the marketplace in 2014 are being forced to wait a week or more to file their taxes.
The federal government sent out incorrect information on about 800,000 1095-A forms, a new form being sent to consumers covered under the Affordable Care Act. The form is needed to file 2014 tax returns.
It's a glitch that means many people who file earlier to get refunds will now have to wait longer for their money.
All corrected forms should be available by early March, according to HealthCare.gov.
Contact Susan Tompor: 313-222-8876 or firstname.lastname@example.org.
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