Up to half of the 6.8 million Americans who received premium subsidies in 2014 could end up owing the federal government money because of it this tax season, The Wall Street Journal reports.
According to an analysis by top tax firm H&R Block, as many as half of the customers who got premium subsidies may end up owing the federal government money after being overpaid throughout the year.
The problem is that customers have to estimate their income for the upcoming year when applying for Obamacare subsidies — and any mistakes or changes could mean that the IRS actually overpays them.
“The ACA is going to result in more confusion for existing clients and many taxpayers may well be very disappointed by getting less money and possibly even owing money,” Charles McCabe, president of Peoples Income Tax and the Income Tax School, told WSJ. “The whole implementation of Obamacare will be frustrating for tax preparers.”
On the upside, however, the mass confusion at the IRS and amongst tax preparers could leave the agency without adequate resources to fully enforce the individual mandate. And because the White House is behind on approving paperwork for the IRS’ implementation already, according to a report last month from the American Action Forum, the tax on the uninsured is likely to be only lightly enforced this year. (RELATED: White House Still Dodging IRS On Individual Mandate Paperwork)
The uninsured will get even more of a break during this tax season because the Obama administration is taking tax filers at their word about whether they actually had health insurance. The IRS has said it won’t reject tax returns if customers don’t answer questions about health insurance and will accept tax filers’ calculation for the penalty they owe the government if they admit they went without health coverage.
This tax season, customers will owe $95 or 1 percent of household income. Those totals can get fairly pricey — WSJ calculated that a single adult earning $60,000 a year could owe almost $500 for the tax, while a family with two adults and two children that makes $250,000 would owe $2,297. And the tax for going uninsured in 2015 climbs to $325 or 2 percent of income.
While tax preparers will be hard put-upon to cover customers’ bases with a load of new requirements this season, they’re also likely to see their bottom lines grow. As filing taxes grows more complicated for the average American, and especially those 6.8 million Obamacare customers, more people may choose to turn to a tax preparation service rather than attempting to figure out the forms on their own.
Industry experts may be calling 2014 the worst tax season yet, but 2015 is already set to grow even more complicated. This year, the employer mandate begins to take effect. Employers will have to report to the IRS who has health insurance through their job and who doesn’t, beginning in 2014, after the Obama administration delayed the reporting requirements in July 2013 due to the business community’s outcry.
The reporting requirements will likely make the IRS’ job more difficult and they’ll have to check tax filers’ reported health insurance status with employer records, giving the agency a way to charge customers more strictly for the individual mandate tax.