Tax Day Shocker: Obamacare ‘Clawback’ To Hit Some Subsidy Recipients With Huge Tax Bill

Anyone who receives Obamacare subsidies could be in for a rude awakening this tax season.

Four in ten low-income Obamacare participants will face sticker shock this April 15 when they discover they owe a great deal of money to the IRS because of a little-known “clawback” provision in the health-care law.

A family of four could owe the government as much as $11,200, according to a 2013 prediction by researchers at the University of California, Berkeley.

The idea that struggling, low-income Obamacare enrollees would have to repay the government for subsidies has been a dirty little secret that has always been part of the Affordable Care Act.

Although its existence has been known since 2010, neither Obamacare advocates nor the Internal Revenue Service have widely publicized it.

Authors of the groundbreaking UC study, written by supporters of the health-care law, warned the repayment feature could kill future support for Obamacare.

“Repayment requirements could lead to public dissatisfaction with the exchanges. And if there is much media attention to the need for repayments, some people could be dissuaded from participating in the exchanges,” they cautioned.

As tax time approaches, the word of forced repayment could fuel yet another round of public anger directed at Obamacare. This time, however, the anger could originate from Obamacare’s own beneficiaries.

Taxpayers should also be concerned, since estimates show the erroneous subsidy payments could cost the government up to $4.7 billion in 2014 alone.

And because the repayments are “capped,” the federal government will only be able to recover a small portion of the erroneously awarded subsidies.

Still, workers who receive income that’s 100 percent to 400 percent of the federal poverty line could face difficult repayments ranging from $600 to $2,500.

The California researchers admitted even a $2,500 repayment could be devastating to a couple.

“A repayment requirement of $2,500 could be a financial shock to a family of two earning $50,000 a year,” they stated.

Douglas Holtz-Eakin, the former director of the Congressional Budget Office, warned in an interview with TheDC that many Obamacare enrollees will be upset as April 15 approaches.

“There’s going to be a lot of dismay when they get to tax filing season,” he told TheDC in an interview.

Holtz-Eakin added it’s unlikely the government will recover or “recapture” all the wrongly-issued subsidies.

The administration “could simply say enforcing the recapture of too generous subsidies is too hard and effectively say, ‘we’re not going to get the money back.’ And the taxpayer loses,” he says.

The former CBO chief cited the federal government’s poor experience with a simpler, but comparable program called the Earned Income Tax Credit, under which as many as 25 percent of the filings were erroneous.

“This is a much more complicated system,” he said.

CBO estimates Obamacare subsidies to be $17 billion in 2014. A 25 percent error rate could cost the government $4.7 billion.

Tax experts say the problem began when the government originally asked Obamacare applicants who sought government subsidies to use two-year-old income data to establish their eligibility.

Obamacare policyholders in 2014 received subsidies based on their 2012 household income. Now they will have to reconcile the subsidies with their real 2014 earnings, which they report this year.

If they earned more income in 2014 than they originally stated in their 2012 tax returns, they will be ineligible for a portion or all of the subsidies.

Those Obamacare enrollees, consequently, will have to repay the money this year with their 2014 income tax return.