Health care sign-up season and tax return season have merged – some say collided – with a complex set of new Obamacare requirements that will affect Americans filing returns for 2014.
Taxpayers who are U.S. citizens will have to confirm to the IRS that everyone on their return had health coverage that met ACA standards this year. But unless they got coverage through a health exchange, written proof of coverage is optional this year.
If they didn’t have coverage, they must either have an exemption from the federal government or pay a penalty. And if they received tax credits, aka subsidies, toward premiums paid for insurance in health insurance marketplaces run by states or the federal government, they’re going to have to prove they qualified –every month of the year.
“The implications of changes to the tax code because of the Affordable Care Act are profound; it’s the largest change in over 20 years…46 changes to the code this year,’’ said Kathy Pickering, executive director of the Tax Institute at Kansas City-headquartered H&R Block.
IRS officials warn of a “miserable” tax filing season with longer wait times on advice calls and likely delays in handing returns due partly to health care and also a new law dealing with foreign accounts. The agency had asked Congress for an extra $430 million to deal with the health care law; it got nothing.
Almost every tax filer is going to have to think about their health insurance situation at least a little, and experts say as many as 1 in 3 might have to do considerably more.
Commissioner John Koskinen urges taxpayers with questions about the ACA to start out looking at the agency’s web site. Meanwhile, DecodeDC has pulled together the following interactive quiz to help you get an early understanding of what’s ahead:
While the minimum penalty of $95 per adult or up to $285 for family may not sound so steep, many people miss the kicker “or one percent of household income” above the family’s filing threshold. For some families, that could be thousands of dollars. The only cap is tied to the cost of the national average premium for bronze level (the lowest minimum coverage level) which the IRS says, as an example, would be $12,240 for a family of five in the highest income bracket.
Requests through the marketplaces require paper applications to be processed, which can take at least two weeks and perhaps longer, possibly delaying processing of returns until the taxpayer has the unique nine-digit number that shows an exemption has been approved. It's estimated that at least a third of more than 30 million uninsured citizens are eligible for at least one exemption.
However, Pickering said the IRS has recently indicated it would accept returns with exemption requests from the Department of Health and Human Services marked "pending" and match approvals later so that filing could start, but details are still to come.
The IRS hasn't spelled out just how hard it's going to pursue people who face penalties or have to repay credits, but the main tool available to collect is refunds, which can be trimmed to pay off the debt. The debt could carry over for more than one year.
All the tax experts interviewed stressed how important it is for people -- even those with employer-paid coverage, but particularly those who are uninsured or in Obamacare plans -- to do an insurance check-up before filing taxes, preferably before the end of the year. Most tax firms either have partnerships with insurance brokers to help people find coverage, or in some franchise offices, tax preparers are also licensed health plan brokers.
“You don't want to go into 2015 without coverage or without knowing what your options are,’’ Kim Lankford, health and tax columnist for Kiplinger, the Washington-base personal finance advice firm said. ‘’And even in the last few weeks of the year, there are things you can do to adjust your taxable income and do other things to improve your position on health coverage going into 2015.’’
[Also by Lee Bowman: Congress passes bill to better understand sudden infant deaths]
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