For most taxpayers, this will simply mean checking a box on a tax return indicating they had insurance for the full year. But millions of others will have to grapple with new tax forms and calculations that may generate unexpected results.
For instance, most of the 6.7 million people who bought insurance through the exchanges received subsidies, which reduced their monthly premiums. But those subsidies were based on previous years’ income — so people whose incomes have changed will inevitably have to pay some of that money back, while others may receive fatter refunds.
I’m not sure why they say a subsidy was based on someone’s previous years income. The subsidy is based on the applicant’s ESTIMATE of his income for the tax year in question. Also, it’s not clear to me that “most” of the 6.7 million people received subsidies on a monthly basis or received subsidies at all.
The subsidy you receive is reconciled on your tax return to determine if you receive too much, too little or if the account was just right….
RECONCILING People who bought subsidized insurance on the exchanges received what is actually an advance on a tax credit. Since the amount of help taxpayers received was based on 2012 income (Ed note – simply not true), it will need to be reconciled against what they actually earned in 2014 — particularly if they earned more or less and did not update their income data on the exchange.
Some people will be surprised that they must pay some of that money back, or at least have it deducted from what they would have received in a refund. Conversely, people who earned less money in 2014 — and who received subsidies that were too small — may receive money back. Changes in life circumstances — a divorce, marriage, a new child — can also affect those numbers.
“This is the part that can be very complex,” said Kathy Pickering, executive director of the Tax Institute at H&R Block. “People think of the tax credit as a discount on their premium. But realizing it can be something you repay a portion of is going to be a surprise.” (emphasis added)
Let me get this straight, we have a very complex tax return for the lower income portion of the population. Can you spell “RECIPE FOR DISASTER?”
The article also discussed the Obamacare penalty for not having compliant coverage.