As is there isn’t enough complexity surrounding the Affordable Care Act, also known as ObamaCare, a new problem has come to light: filing taxes for those who participate in it, or don’t participate in it, but are required to by law.
First there is the individual insurance penalty. A main feature of the law is a “mandate” that says most Americans are required to carry health insurance. If you have no coverage, you need to compute your penalty. Take the lesser of $95 per non-insured adult, and $47.50 for each child under 18; or $285. Your penalty cannot exceed the national premium of $2,500 but figuring that out is exceedingly difficult and requires you to file long-form taxes. Many Americans have absolutely no experience with this and don’t understand how to attempt it, so they are heading to tax preparatory firms like H&R Block.
Of interest, the IRS says it has to trust tax filers to answer truthfully whether they had health insurance or need to pay a penalty for not having insurance. Some taxpayers are likely to skip the question about health insurance, some because they don’t want to pay the penalty, others because they don’t think it is required. If you don’t say yes or no, how can they penalize you? Tax return preparation software may or may not default to yes or no, depending on what software is used, if it is attempted by the individual.
Remember, though, that you must sign your tax return under penalties of perjury. Your penalty for not being insured is bound to be less than penalties for perjury. Kathy Pickering, executive director of The Tax Institute at H&R Block, said that tax payers may be in for some confusion and unpleasant surprises this year.
“Many may get a smaller refund because they had to pay a penalty for being uninsured. Or, the refund is smaller because they had to pay back some of the Advance Premium Tax Credit. The tax credit they received was based on estimated income, so if they actually earned more money, they may have to pay back some of the tax credit out of their refund.”
She said there are so many rumors regarding penalties and filing that it’s difficult to advise people in a group; they need to be advised of their individual situation.
“The reality is that the penalty varies depending on each person’s situation, and consumers may find themselves paying a higher penalty that is up to 1 percent of their annual household income and would come straight out of their tax refund. That could be a difference of hundreds of dollars.”
Sadly, it seems most taxpayers will come away poorer, and none the wiser.