As the old saying goes, “The only guarantee in life is death and taxes.” While it may only be October, it is never too early to worry about your taxes.
Customers counting on their tax refund to catch up on bills, bolster their bank account, or just to buy themselves (or their family) something nice may be one of millions of Americans utilizing tax credits to help with the new health insurance premiums that follow the
Affordable Care Act. For them, it is definitely not too early to worry about taxes.
Should 2014 income end up higher than what originally expected upon signing along the dotted line for health insurance, a series of interconnected ties between the new health care laws and taxes may result in a reduced refund, or erase it completely. Something as
mundane as more overtime, a slight raise, higher sales and commissions this year than last can trigger unwanted responses when your tax refund is concerned.
The catch is when a worker’s income increases, their ability to qualify for additional tax credit decreases, or ceases completely. Whatever the difference is will be ripped from the refund, which results in not being able to purchase that new flat screen television, put new tires on the car, or pick up the slack on the utilities.
Across the United States, almost 7 million households received healthcare insurance tax credits, many of whom are oblivious to this risk.
The Vice President for health care programs with Jackson Hewitt Tax Service states: “More than a third of tax credit recipients will owe some money back, and (that) can lead to some pretty hefty repayment liabilities.H&R Block warns that consumers with an increase in
income should contact HealthCare.gov or speak with their state insurance exchange in order to update their healthcare account. While those in danger of losing more money in health insurance premium costs, they can at least avoid a more devastating experience come tax
season. H&R Block’s Vice President of Healthcare Services warns:”As time goes on, the ability to make adjustments diminishes. Clients count on that refund as their biggest financial transaction of the year. When that refund goes down, it really has reverberations.”
“What probably isn’t clear is that there may be consequences at tax time,” Ciaramitaro adds.
Here are two bullet points to think about (keep in mind that these are averages):
- Average tax credit subsidy on the new health insurance exchange policies: $264 per month ($3,168 a year)
- The average tax refund: $2,690.Imagine having to pay back a fraction of those tax credits to cover the difference. A few taps on a calculator will reveal a loss in the hundreds of dollars, potentially more, depending on the new financial situation.
The White House says that it has and continuously encourages newly-insured consumers to report any developments that could effect their coverage, but the encouragement does not hammer away the issue regarding tax refunds and potential losses come spring.
Aaron Albright, a spokesman for the Department of Health and Human Services, asserts that the Obama Administration will take action to more inform the public on these facts.
Following the IRS’s release of new forms for administering healthcare insurance credits for next spring, Americans have become more concerned with the web that is the new healthcare law provisions and tax laws. The new forms set up a final accounting of income and the tax credits that may be allocated to the consumer with said income.
Many factors are considered other than income, such as location and the size of the applicant’s family.
The experts already find the new forms convoluted and entangling, necessitating a monthly assessment for some Americans.
Those previously used to filing a more-simple 1040EZ won’t be able to do so if they are the recipient of health care insurance credits this year.
Some realities to consider:
- Some believe that the IRS cannot use liens and levies to seize the law’s penalty on those who opted out of the Affordable Care Act. However, there is not a limitation on collection efforts in incidents in which a consumer received more tax credits than they qualified for.If the tax refund cannot cover the repayment of these credits, it will come out of your personal accounts. One way or another, the IRS will be getting that money back.
- The amount of compensation that the IRS can retrieve is capped-off for most Americans because of the overall expense of healthcare insurance. Consumers that amass less than $22,980 are only expected to pay back up to $300. For someone making between $22,980 and $34, 470,the cap increases to $750. Those bringing in between $34,470 and $45,960, the cap increases even higher to $1,250. Families can expect the cap to be doubled, although this also varies based on income ammounts and the size of the household. Consult the IRS website for further inquiries based on your own economic standing and family
- The households that pull in more than four times the federal poverty level will not see any such cap as those listed above. They could face the biggest financial windfall in regards to repayment due to their being held accountable for the entire amount of credits that they accepted. These include $45,960 for a single payer, $78,120 and more for a three-member household, and $94,200 for a four-member household. Ciaramitaro recommends those facing these realities should attempt to minimalize their taxable income using legal outlets, like utilizing an IRA. The IRS states it will work with those who are unable to pay in full so that they may better grasp their options.
- If a consumer overestimated their income and received too small a tax credit for health care, the IRS will supplement the refund to cover the difference (at least it works both ways!).While the Affordable Care Act may have aided millions with health insurance issues, it has also helped complicate the most complex tax code in the world. This does not bode well for those not in the know.The best way to keep the family bank account safe come tax season is to act now, before the issue further complicates itself.
Author Bio: Robert Remmington has worked in tax preparation and corporate accounting for nearly 15 years. Robert has dealt with the IRS on over 200 personal and corporate audits.