Tax season makes most Americans groan, but those with ObamaCare may be growling louder when they see their tax refunds eaten up or replaced by a tax bill.
Eighty percent of those with an ObamaCare plan utilize subsidies to cut the overall costs of their health care plans. The benefit was delivered to them in the form of tax credits up front and based upon estimated income.
When they file their 2014 returns, however, the IRS will compare their actual income to their estimated income when they applied for coverage. The difference may lead to their having to repay the government for the overpayment in subsidies.
In many instances, this will be a richly-deserved outcome for those who lied about their incomes. Currently, the Administration is going after 279,000 households that reported incomes which still don’t match up with what the government has on file for them. We can't forget the videos of Obama navigators telling applicants to underreport their income so they could qualify for a subsidy. Another issue is those who still haven’t confirmed their immigration status.
But some will have been innocent of lying. Life changes. People get married or divorced. A birth, a death or employment can also contribute to differences in a household’s income.
Whatever the reason, there will be some griping when they have to return their subsidies and start to pay the full cost of healthcare. We wonder how many will keep their plans at that point.
Those affected took advance payments of the premium tax credit for health insurance. Some married couples could owe $600 or $1,500 or $2,500 or even more. It might feel like a raw deal for some who are already suffocating under the escalating costs of health insurance.
What can you do to avoid tax-time problems?
Experts say people need to realize early on that they should report changes in income and other changes in one's life, such as a marriage, throughout the year. See HealthCare.gov to report "income and life changes."
Of course, many people may have no idea that they'd need to report changes.
Karen Pollitz, senior fellow with the Kaiser Family Foundation, said many people who qualify for these tax credits aren't working 9-to-5 jobs with regular salaries. So guesstimating one's income for the coming year can be very tough.
"It's people in transition. Maybe they're in and out of work," she said. Or maybe they're self-employed.
The tax credits are paid directly to the insurer, if taken in advance. People are not required to take the entire credit in advance. Realistically, if you cannot afford insurance, you'd need some credit in advance.
This will be a perennial problem with ObamaCare as it operates in arrears. Life changes are constant, but ObamaCare relies on honest Americans to report those changes as soon as they happen, which is not realistic or likely.
The subsidies are a distinctive mark from regular healthcare plans because income affects the eligibility and size of subsidies that help pay for ObamaCare plans – similar to financial aid for students. In a regular system you purchase whichever plan you desire and figure out how you'll pay for it afterward.
The real issue is how wide the Administration set the parameters for those who could qualify for subsidies. Premium tax credits are available to individuals and families with incomes between 100% of the federal poverty line ($23,550 for a family of four this year) and 400% of the federal poverty line ($94,200 for a family of four) who purchase coverage in the health insurance marketplace in their state. While we want all Americans to secure affordable coverage for themselves and their families, ObamaCare is not that. Taxpayers have to give enrollees the money to pay for their premiums, which demonstrates that ObamaCare plans are inherently unaffordable. That’s ironic given the name of the law which makes them available.
ObamaCare just keeps surprising Americans. This is just another unpleasant surprise many families will face come next tax day.