ObamaCare Taxes: Next Filing Season Could Be "one of the most chaotic in years."
ObamaCare Taxes: Next Filing Season Could Be "one of
the most chaotic in years."
Posted by John Kartch on Tuesday, June 10th, 2014, 10:25
AM
Problems with a key component of ObamaCare will lead to
unpleasant surprises for Americans during the 2015 tax filing season, according
to testimony from a top tax expert before the House Ways and Means
subcommittees on Health and Oversight today.
“I am here today to tell you that the upcoming tax filing
season has the potential to be one of the most chaotic in years,” said Ryan
Ellis, an IRS Enrolled Agent and Tax Policy Director at Americans for Tax
Reform.
According to the testimony:
“One of the key elements of the Affordable Care Act,
popularly known as “ObamaCare,” is the creation of advanceable tax credits for
the purchase of exchange health insurance plans.
Taxpayers applying for credit assistance must be
evaluated by government entities ranging from the SSA to CMS to the IRS. The goal is to have an educated estimate,
based on the most immediately-available government documents (e.g. prior year
tax returns, etc.), of the taxpayer’s probable income for the year--which in
turn determines the size of the tax credit.
In an effort to get this tax benefit out quickly, the
estimated credit is advanced to the insurance company by the IRS, which applies
it to customer premiums.
This is an important point—the money has left the IRS’
hands up to over a year before the taxpayer actually calculates his final
credit amount. The insurance companies
have collected it, and they are not required to pay it back.
Press reports this month indicated that the government
was having a hard time doing all this, with 1.2 million of the 6 million
federal exchange applicants having to be asked for additional income
verification information from CMS. That
is not surprising. Applicants are asked
to complete a detailed, confusing twelve-page application which asks for
income, family size, etc. It is rather
like trying to fill out a 1040 on the fly.
Added to this is the lack of employer reporting requirements and the
failure to complete the back-end of the web site.
Inconsistencies--some of which are the result of failures
of the healthcare.gov system, some of which are poor records from the
government, and some of which are mistakes from the individual--are not
surprising. But they are a problem. It is the middle of June, and many people
have now been receiving inaccurate subsidies for six months. To the public’s knowledge, not a single
advanced tax credit has been adjusted this year.
So what happens if the flawed, confusing process results
in a tax credit larger than what the law calls for?
A hypothetical example might help illustrate: a health
exchange customer selects an ObamaCare exchange plan. The government estimates that this taxpayer
will earn $30,000 this year, which makes her eligible for a $2000 tax credit. This $2000 is paid to the taxpayer’s
insurance company to help with premiums.
The next spring, our customer/taxpayer is filling out her
tax return. Unfortunately, the
government estimated the taxpayer earned too little and paid too large a credit. She actually earned $40,000, and so only had
a $1500 credit coming to her.
Depending on the taxpayer’s income level and availability
of verified affordable workplace insurance, she will have to pay back much or
all of the $500 overage to the IRS. This
means skinnier refunds and maybe even liabilities, and it won’t be the
taxpayer’s fault—it will be the government’s fault.
It is also inevitable that many people are receiving tax
credits for which they are completely ineligible. The firewall of the offer of employer
sponsored insurance is a new concept — tax preparers will have difficulty
figuring out how it works in operation. There is virtually no way to catch it
on the front end — but come tax filing season, many people will end up owing
thousands of dollars, and it will be a complete surprise.”
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