Obamacare ‘Clawback’ Lowers Tax Refunds By $530 On Average
A majority of Obamacare customers have had to pay back an average of $530 of the subsidies they received to purchase health insurance, according to a new report from the tax preparation company H&R Block.
The clawback amounts to a 17 percent decrease in the average tax refund, according to the company’s analysis, which was based on information from the first six weeks of the tax season.
“The level of payback of the Advance Premium Tax Credit is significant in that it’s costing taxpayers a large percentage of their refund – a refund many of them count on to pay household expenses,” said Mark Ciaramitaro, vice president of H&R Block health care and tax services.
It is worth noting that H&R Block has a vested interest in attracting new customers who may be confused by Obamacare’s complication of the tax code. That has, however, been one complaint leveled against the law — that it makes calculating taxes more difficult.
Nevertheless, according to its internal analysis, 52 percent of H&R Block’s customers who received Obamacare subsidies will have to pay back some portion of their subsidies.
H&R Block predicted the outcome based on its assumption that many consumers would underestimate their 2014 income when applying for subsidies. As the firm noted in its report, consumers used their 2012 income as a baseline to estimate their 2014 income when filing for the subsidies.
“This income underreporting has led to a majority of Marketplace-enrolled taxpayers paying back a portion of the tax credit. The average tax refund for these taxpayers was almost $3,100 but it was reduced by $530 due to the tax credit reconciliation process,” Ciaramitaro said.
Obamacare architects and those who have followed debate about the law were aware that many consumers would find themselves ensnared by the clawback. But a group of pro-Obamacare researchers noted that many consumers would be surprised — and not in a good way.
“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,” wrote researchers at the University of California, Davis, in 2013. (RELATED: Tax Day Shocker: Obamacare ‘Clawback’ To Hit Some Subsidy Recipients With Huge Tax Bill)
Douglas Holtz-Eakin, the former director of the Congressional Budget Office, expressed the same concern in an interview with The Daily Caller earlier this month.
“There’s going to be a lot of dismay when they get to tax filing season,” he told TheDC.
Individuals whose household income is between 133 percent and 400 percent of the federal poverty level are eligible for Obamacare subsidies.
“The credit is advanced ahead of time to the taxpayer’s insurance company,” the group Americans for Tax Reform explained in a press release. “The taxpayer must reconcile at tax time the advance credit received with the actual credit she is eligible for.”
H&R Block also claims that the average tax penalty for not having insurance coverage was $172. That surpasses the $95 minimum mandate “many consumers anticipated” under Obamacare.
Americans for Tax Reform warned that many more consumers will be surprised in future years by hefty tax penalties as Obamacare’s individual mandate rises to 2.5 percent of adjusted gross income.
The anti-tax group also asserted that the “tax season surprise” will hit low income families the hardest.
“Families of four earning less than $97,000 are eligible for a credit. So is a single mother with two children earning less than $80,000 and an unmarried/childless taxpayer earning less than about $12,000,” reads the group’s press release. “By definition, these are the lowest income recipients of Obamacare health insurance outside the Medicaid-eligible population. Higher income taxpayers received no tax subsidy and aren’t facing this tax season surprise.”