Half the Obamacare customers who received premium subsidies will end up owing the IRS big come tax season — almost $800 on average, according to a new study.
The Kaiser Family Foundation estimates that 50 percent of Americans who purchased taxpayer-subsidized health insurance on an Obamacare exchange will have to repay the federal government. Because the Obamacare subsidy system requires customers to estimate their income for the upcoming year, those who end up earning more than expected will end up getting more subsidies than appropriate.
That will leave them owing $794 to the IRS on average, according to KFF. Another 45 percent are expected to have overestimated their income and should get extra money back from the government, for an average refund of $773. (RELATED: Fuzzy Obamacare Subsidies Could Leave Obamacare Customers Owing The IRS)
Those who make a set annual income may have an easy time estimating their upcoming income when applying for Obamacare coverage, but the process is more difficult for hourly workers who aren’t sure exactly what they’ll make by the end of the year.
Because the subsidies are only offered to those with relatively low incomes, even owing the IRS several hundred dollars could hit these individuals and families hard. And KFF notes that it could be a complete surprise, as in the first year of Obamacare, some people were unaware they were even receiving subsidies.
“An unanticipated repayment — which may require tax households to actually write a check to the IRS or get a lower-than-expected tax refund — may be difficult for these households to handle financially, even though it would only happen if their income is higher than originally estimated.”
There’s quite a range, however. Americans who earn between 100 percent and 400 percent of the federal poverty level qualify for the premium subsidies — earning around $45,960 annually for an individual and $94,200 for a family of four. Those who believed they’d fall into that window and and end up earning more than the limit could end up owing thousands.
For those who underestimated how much they’d earn but remain under 400 percent of the poverty level, however, Obamacare caps the amount customers are required to repay. Those with the lowest incomes won’t have to pay back the full amount of subsidies they owe.
At the top level, those between 300 and 400 percent of the poverty level that owe the feds will have to pay $1,380 on average. Those in the group whose incomes broached the 400 percent maximum for eligibility will owe the IRS a check for $2,306.
“To the extent people are uncertain about how much of a subsidy they will ultimately qualify for, they may be more hesitant to sign up for insurance,” the report concluded.