‘Obamacare’ Adds Layer of Complexity for Tax Filers

February 25, 2015 Updated: February 25, 2015

More than half the taxpayers who bought individual health insurance through the Affordable Care Act in 2014 will have to pay back a tax credit once April 15 arrives, according to H&R Block. It’s for a pretty positive reason, though. More than half of taxpayers made more money in 2014 than they thought they would.

Most of those who bought health insurance on state or federal marketplaces during the first Affordable Care Act open enrollment period used their 2012 income to estimate how much they would earn in 2014. The earnings impacted the amount of the Advance Premium Tax Credit (APTC).

When it’s time to file federal income tax, that tax credit makes the tax refund bigger. But higher earnings mean a smaller tax credit. What H&R Block calls repaying is more accurately described as not getting an expected bonus.

The tax preparer’s analysis took an alarming tone. It seemed to imply that people would have to pay out of pocket, but it really meant they would get a smaller refund, 17 percent smaller on average.

What H&R Block calls repaying is more accurately described as not getting an expected bonus.

News site The Daily Caller described H&R Block as standing to reap a windfall from individual insurance enrollees who need help navigating the complexities of tax credits, insurance subsidies, and penalties. It accused the company of lobbying to affect the law before its passage in order to gain new clients.

Ryan Ellis, the tax policy director at Americans for Tax Reform, said that the company hopes to profit from the plight of “Obamacare” enrollees and those without health insurance who, for the first time, will have to file special tax forms related to their health care coverage, the Daily Caller reported.

The Affordable Care Act changed the tax code. “The Affordable Care Act has made health care a tax issue and is going to make filing taxes more complicated this year,” said H&R Block CEO and President Bill Cobb in a Jan. 5 press release.

For another potential tax day surprise, 2015 is the first year people will have to pay a penalty if they do not buy health insurance.

Missed Exemptions

H&R block, which is the world’s largest consumer tax services provider, analyzed the tax returns it has handled so far, six weeks into tax season. They found people appear to be honest about whether or not they have coverage, but they are missing exemptions.

“Our data suggests that most taxpayers are accurately indicating their household insurance coverage status,” said Mark Ciaramitaro, vice president of H&R Block health care and tax services, in a statement.

Ciaramitaro said clients “appear to be answering truthfully by paying the tax penalty for being uninsured. We don’t think they are just checking the box that they are covered when they’re not.”

People are missing the hardship exemption though, according to H&R Block.

A person who cannot afford health insurance (meaning the cheapest premiums would be greater than 8 percent of household income) owe no penalty.

People who fall into what is called the Medicaid gap also owe no penalty.

That means they live in a state that chose not to expand Medicaid to cover individuals with incomes at or below 138 percent of poverty. A person can be too rich to be covered by Medicaid and too poor to get a tax credit or premium subsidies to help pay for health insurance.