Obamacare | The Government's Takeover of Health Care
Obamacare Subsidies Could Have Big Impact at Tax Time
Created on Thursday, 26 June 2014 08:18
Written by Justin Credible
Obamacare is turning out to be less affordable than it was pitched to be. If you don't have health insurance, you're mandated to pay a fine to the federal government. What's unknown to most people is that not only are the rules surrounding this constantly changing, but it also has a huge impact during tax time. While it's called a subsidy, it's a tax credit in reality, and if you earn more during the year, that tax credit changes, making you having to pay more back to the government.
Most Americans are well aware that if they don't have health insurance they'll be subject to a tax penalty under the Affordable Care Act. What many don't know is that if they've enrolled in an Obamacare exchange plan with a government subsidy, they could also find themselves on the hook to Uncle Sam next spring.
"It's not a subsidy; it's an advanced tax credit. It's actually based on a previous year's income," explained William Cobb, chief executive of H&R Block, the nation's largest tax-preparation service.
So if your income changes this year, he said, the amount of your tax credit could be impacted.
"When the year is finished and you're filing your taxes, that's when the reconciliation occurs against your actual income," Cobb said. "If you made more money, you're going to owe money back against your tax credit."
Already, more than a million people who enrolled in ACA exchange plans this year have seen their applications flagged by the Obama administration. That's due to inconsistencies between their previous income on IRS records and their estimated income for 2014.
Health department officials say part of the problem is that the income reconciliation process is brand new. Yet, that's what worries tax specialists.
"Jackson Hewitt is concerned about delays reconciling premium assistance tax credits and the impact that could have on refund distribution," said George Brandes, director of health-care programs at the nation's second largest tax-preparation firm.
Brandes expects the process will complicate returns for millions of Americans, when they file their 2014 returns, especially for the self-employed and others with variable incomes.
"What we're telling our clients is if you think that your income may be different from what you estimated," Brandes said, "you should definitely report it because that can help you avoid surprises when tax time comes around."
Justin Credible is a contributing editor for Habledash.