The tax filing season has uncovered lingering wrinkles in the 2010 health-care law that have caused headaches for consumers who incorrectly estimated their income, didn’t use a government exchange to buy an insurance plan or changed coverage during the year.
Marta Chapman saw her anticipated $850 federal refund wiped out because she received too much in advance tax credits in 2014 to pay her insurance premiums under the Affordable Care Act. That prompted her to drop her plan for this year.
“I canceled because I was very upset. To me it was kind of a trick,” said the 48-year-old personal-care aide in Aztec, N.M. “If I knew that, I wouldn’t have got the insurance.”
Federal officials said they have been working hard to help people get used to the law’s system of financial help to pay health premiums, and will continue to try to make it easier for them. They said the Treasury Department had estimated the vast majority of people who got tax credits would still have some tax refund, on net.
“This is the first year that health insurance and taxes intersect,” said Aaron Albright, a spokesman for the Centers for Medicare and Medicaid Services. “Their tax credit may end up being bigger or smaller than expected, depending on what the person’s income was, but in every case, it is a tax credit from the federal government to lower the cost of their health care. We’re committed to listening and learning along the way so that we can improve.”
The law’s architects wanted the system to be fair, precise and well regulated. They tailored premium subsidies to the cost of insurance for people based on their age, local area and their household income for the year they have the insurance plan.
The special health insurance enrollment period set up for people surprised by their tax penalties hasn’t appeared to increase either awareness or enrollment by much, new research shows.
People who live in the 34 states that use HealthCare.gov and didn’t know about the requirement to have health insurance can sign up through April 30 for 2015 coverage.
But nearly half of people planning to file taxes said they had heard nothing or very little about the requirement to report whether they have insurance on their tax return, according to new research funded by the Robert Wood Johnson Foundation..
“Very few people are reacting to the news by insuring,” said Kathy Hempstead, who directs insurance coverage issues at RWJF.
“So far it doesn’t seem we’re seeing this mass teachable moment.”
A new report shows that as the United States’ tax system grows more complicated because of Obamacare regulations, the economy is taking more of a hit.
According to data from the National Taxpayers Union Foundation (NTUF), complying with the federal income tax cost the economy about $234 billion in productivity last year.
The group came to that figure by adding the out-of-pocket cost of tax preparation assistance ($31.7 billion) and the estimated cost of $202.1 billion due to lost labor hours Americans spent dealing with their 2013 tax returns that were filed in 2014.
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The economic hit was lower than the previous year by almost $10 billion, and the NTUF concludes that “was an anomaly.”
The increase to this year’s figure, according to the NTUF, stems from the Affordable Care Act and the mountain of paperwork it has created at the IRS.
“Looking deeper at NTUF’s research, there is one big reason to think this could be the beginning of a trend in the wrong direction: 3,322 pages of legal guidance for Obamacare (or the ACA) added to IRS.gov (1,077 pages of regulations, 1,377 pages of Treasury decisions, 669 notices, 100 revenue procedures, and 12 revenue rulings),” the report reads.
“Essentially, Obamacare is coming home to roost.”
As millions of Americans scramble to file their tax returns, many are shocked by the full cost of ObamaCare’s individual mandate.
“Those who failed to obtain minimum essential health insurance coverage last year will have had to send the Internal Revenue Service (IRS) a check for $1,130, on average,” Doug Holtz-Eakin, former director of the Congressional Budget Office, testified today before a congressional hearing.
An estimated 6.3 million people will be required to pay a penalty this year because they didn’t buy qualifying health insurance in 2014, Holtz-Eakin testified. Another 30 million people didn’t buy the mandated coverage either but won’t have to pay the penalty because of the myriad exemptions the Obama administration is allowing, with or without legal justification.
Holtz-Eakin, now president of the American Action Forum, based his calculations on the number of people who will pay the penalty and the average value of the penalty, using demographic information from the American Community Survey and enrollment statistics from the U.S. Department of Health and Human Services.
This year’s new analysis of tax complexity from National Taxpayers Union Foundation (NTUF) found some startling lead figures: a $234 billion cost to the economy due to 6.1 billion lost hours of productivity and $32 billion spent out-of-pocket to comply with America’s insanely complicated tax system.
As always, there is much more to the story.
Since 2010, tax complexity costs have remained sky-high, at well over $200 billion each year. From fiscal year 2005 to 2013, the Treasury’s paperwork burden rose from 6.4 billion hours to 7 billion hours never making up less than 74 percent of the burden imposed by all government agencies combined.
While last year’s (covering 2013) totals actually trended downward compared to the previous year (2012), there was little reason to believe that was the beginning of a trend toward continued relief.
April 15 is right around the corner, and millions of Americans will find themselves paying more in taxes than ever thanks to Obamacare.
The law is more than a fundamental change to the country’s health care system. It also is a massive tax hike. As The Heritage Foundation’s Federal Budget in Pictures shows, according to the most recent scores, Obamacare will increase taxes by nearly $800 billion for the period of 2013-2022.
Obamacare contains 18 separate tax increases. A few of the biggest include a tax on “Cadillac” health insurance plans, which doesn’t take effect until 2018, long after President Obama and many in Congress who voted for the tax in 2010 have departed Washington. Also, there is a tax on health insurance premiums and a higher rate on the Hospital Insurance payroll tax for single filers with incomes above $200,000 ($250,000 for married filers) that also applies to investment income.
The New York legislature voted down Gov. Andrew Cuomo’s proposal to tax health insurance policies to fund the state’s Obamacare exchange, calling the fees system used by the Obama administration and other states counterintuitive.
The shrinking number of state-run Obamacare exchanges are facing a new problem this year — how to fund their ongoing operations now that start-up grants from the federal government are running out.
In New York, like many other states, Cuomo proposed a tax on health insurance premiums to fund the state-run exchange’s operations. That tactic comes with its own concerns: some states, such as Hawaii, have smaller-than-expected enrollment and the per-policy fees aren’t bringing in enough money.
Rhode Island is considering adopting a tax itself, but due to small enrollment in the tiny state, fees per Obamacare enrollee would likely climb higher than $30 every month, according to Modern Healthcare. Even California, which boasted the highest enrollment of any state in 2014 (but has recently been dethroned by Florida), has had to raise its monthly premium tax.
But according to the New York Post, members of New York’s state legislature refused the extra tax on premiums because the plan would drive up the cost of health insurance for Obamacare customers, defeating the purpose of the exchange and its often-subsidized coverage.
Kevin Pace is a jazz musician who teaches music appreciation in Northern Virginia. When the IRS announced it would impose the Affordable Care Act’s employer mandate here in the Old Dominion, Pace’s employer cut hours for part-time professors in order to avoid steep penalties. Pace lost $8,000 in income. That would be bad enough if the penalties the IRS is now imposing on Virginia employers were legal. Yet two federal courts have held they are not.
In King v. Burwell, four Virginia taxpayers are challenging the IRS’s decision to impose Obamacare’s major taxing and spending provisions in states that refused to establish a health-insurance “exchange.” As provided in the Affordable Care Act, the federal government established fallback exchanges (HealthCare.gov) in those states.
But the act authorizes premium subsidies — and certain taxes that those subsidies trigger — only “through an Exchange established by the State.” In spite of that clear statutory requirement, the IRS is issuing premium subsidies and imposing those taxes in 34 states, including Virginia, that did not establish exchanges. The King challengers allege the IRS is subjecting them, Kevin Pace and 57 million other Americans to illegal taxes in the form of Obamacare’s individual and employer mandates. The Supreme Court heard oral arguments earlier this month, and will likely rule by June.
Times-Dispatch columnist A. Barton Hinkle’s “The case against Obamacare is looking weaker,” March 23 — is skeptical of the challengers’ claim that Congress intended to authorize the disputed taxes and spending only in states that established exchanges. I used to share his skepticism. I no longer do.
By Caitlin Owens
March 29, 2015 Taxes are unpopular. Obamacare is contentious. And the two in tandem promise to make for a political maelstrom, especially come April—when taxes are due and last-minute filers start to see their results.
This year’s deadline, however, is likely to be especially contentious. Last year, 2014—whose tax bills are now coming due—saw the implementation of the individual mandate, the part of the Affordable Care Act that (generally) requires people to have health insurance or pay a penalty.
With added unfamiliarity to an already complex process, filers whose returns are affected by Obamacare may be in for unexpected results, whether a surprise bill or a surprise refund.
As with any event associated with the health care law, rival spin machines will go into full effect, with Republicans highlighting horror stories while Democrats spotlight the law’s biggest beneficiaries. But the real-life impacts of the law are far more nuanced. Indeed, despite all talk of how much Obamacare would cost taxpayers, the reality is that a large percentage of the uninsured are exempt from penalties.
Half of the people who received ACA subsidies in 2014 will owe money to the government because they underestimated their incomes when applying for coverage and got too large a monthly premium credit, according to an analysis released by the Kaiser Family Foundation today. Nearly as many people — 45 percent of individuals with subsidies — overestimated incomes last year and received too small a tax credit every month, Kaiser found. Individuals at the lower-income end of this population will be more likely to owe money (54 percent) than to get any back (40 percent). They also will have lower repayment or refund amounts on average than subsidy-eligible people with higher incomes. Overall, the average repayment will be $794, while the average refund will be $773, Kaiser calculated. These findings spell trouble as many people who received subsidies might not know that they could end up owing back a portion. As subsidies often go to low-income people without financial flexibility, the repayments could be a nightmare. Kaiser suggests that this unpredictability could discourage people from signing up in the future.