Tax refunds will be cut for ACA recipients
Tax refunds will be cut for ACA recipients
Susan Tompor, Detroit Free Press 9:10 a.m. EDT September
21, 2014
A significant benefit of the Affordable Care Act is the
opportunity to receive money-saving tax credits up front to cut the overall
cost of health insurance, but now hundreds of thousands of consumers could owe
back some of that money next April.
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.
"Health insurance is confusing enough, and now
they're adding the complexities of the Tax Code," said Lorena Bencsik, a
member of the Michigan Association of CPAs and owner of Prime Numbers in
Ferndale.
When you file that 2014 tax return next year, the Internal
Revenue Service will compare your actual income for the year with the amount
you estimated when applying for exchange-based health insurance under the
health insurance law.
The next open enrollment period begins Nov. 15. But
notices were sent this week to some consumers whose incomes don't match up to
such things as 2012 tax return information.
On Monday, the Centers for Medicare and Medicaid Services
said at least 279,000 households reported incomes that still don't match what
the government has on record. Supporting documents are needed by Sept. 30.
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.
The IRS put out some more details on the issue mid-month.
What should you report? A move, an increase or decrease
in income, a marriage or divorce, the birth or adoption of a child, whether you
started a job that offers health insurance and whether you gained or lost
eligibility for other health care coverage.
Best spots for information: HealthCare.gov and
IRS.gov/aca.
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.
People who lose a job would want to report that change
during the year, as well, because that change can lead to a higher advance
payment for the credit.
"Life changes can drive tax changes," said Mark
Steber, chief tax officer for Jackson Hewitt Tax Service.
Steber stressed that people need to make sure to update
information via HealthCare.gov or their state insurance exchanges.
The Kaiser Family Foundation site has a calculator to
help figure out potential tax credits, based on one's situation.
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.
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.
To be sure, there are some caps on the amount filers must
pay back and the cap is based on household income. The cap ranges from $300 to
$1,250 for some single taxpayers and $600 to $2,500 for married taxpayers,
again based on income.
But if the income is 400% or more above the poverty line,
there is no cap and the taxpayer must pay back the full amount.
Rules exist for qualifying for the premium tax credit:
You must buy health insurance through the marketplace; you're not eligible for
coverage through an employer or government plan; your income must be within
certain limits; you do not file a married-filing-separately federal tax return
(unless you meet certain exceptions, such as victims of domestic abuse and
spousal abandonment) and you cannot be claimed as a dependent by another
person.
The actual credit would vary based on how close you are
to the federal poverty level, your age, the size of your family and where you
live.
Sadly, it's fair to say some people will see some
unexpected, unpleasant surprises on their tax returns next year.
Contact Susan Tompor at stompor@freepress.com. Follow her
on Twitter @tompor.
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