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Repaying ACA tax-credits to shrink tax refunds for millions

By Larry Clifton     Aug 24, 2014 in Politics
Washington - Experts say more than one third of the nearly 7 million U.S. households that received tax credits to help pay for their health insurance under Obamacare will lose all or a portion of their expected 2014 tax refunds.
"More than a third of tax credit recipients will owe some money back, and (that) can lead to some pretty hefty repayment liabilities," said George Brandes, vice president for health care programs at Jackson Hewitt Tax Service.
Americans whose 2014 income turns out to be higher than estimated when they applied for health insurance will need to pay taxes on the difference in the tax credits they received. The Affordable Healthcare Act, known for its vague and ever-changing details, is sure to surprise many workers who underestimated their income or earned a larger income than estimated when they took Obamacare-related tax credits.
Two basic statistics bracket the potential exposure according to a USA Today report :
• The average tax credit for subsidized coverage on the new health insurance exchanges is $264 a month, or $3,168 for a full 12 months.
• The average tax refund is about $2,690.
This means if your income is higher than estimated in 2014, even paying back as little as 10-percent of the tax credit taken can reduce one’s refund by several hundred dollars. The more money you made in 2014 versus your estimated income upon taking the health-care insurance tax credit, the smaller your refund.
Bottom line, taxpayers who haven’t accurately estimated their tax liability for estimated income versus actual 2014 income may be in for an unwelcome surprise. Millions of Americans who were frustrated by the botched roll out of Obamacare may not have taken into account receiving a smaller refund or no tax refund at all based on their tax credits.Many others will need to pay back money to IRS.
"As time goes on, the ability to make adjustments diminishes," warned Mark Ciaramitaro, H&R Block's vice president of health care services. "Clients count on that refund as their biggest financial transaction of the year. When that refund goes down, it really has reverberations."
While the Obama administration claims to be keeping newly insured Americans updated on their responsibility to report changes that could affect their coverage, experts say those messages are not likely to focus on tax returns.
"What probably isn't clear is that there may be consequences at tax time," said Ciaramitaro.
Below are some highlights addressing Obamacare and taxpayer responsibilities taken verbatim from the USA Today article:
—You may have heard that the IRS cannot use liens and levies to collect the law's penalty on people who remain uninsured. But there is no limitation on collection efforts in cases where consumers got too big a tax credit. If your refund isn't large enough to cover the repayment, you will have to write the IRS a check. "They are not messing around," Brandes said.
—Health insurance is expensive, and with that in mind, the repayment amount the IRS can collect is capped for most people. For individuals making less than $22,980 the IRS can only collect up to $300 in repayments. That rises to $750 for individuals making between $22,980 and $34,470. For individuals making between $34,470 and $45,960, the cap is $1,250.
For families, the cap is double the amount that individuals can be charged, but the income thresholds vary according to household size. An IRS table may help simplify computation, which is based on the federal poverty levels for 2013.
—There is no collection cap for households making more than four times the federal poverty level. They face the greatest financial risk from repayments, because they would be liable for the entire amount of the tax credit they received.
Those income thresholds are $45,960 and above for an individual, $78,120 and above for a family of three, and $94,200 for a family of four. Ciaramitaro says people facing that predicament should try to minimize their taxable income through legal means, such as putting money into an IRA. The IRS says it will work with taxpayers who can't pay in full so they understand their options.
End of USA Today quote
Taxpayers stuck with surprisingly small refunds and those who wind up owing money to the government won’t be able to vent their frustrations at the ballot box during Nov. 4 midterm elections since the 2014 tax season doesn’t begin until January 1.
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