The second major intersection between Obamacare and the tax system applies to about 8 million people who purchased policies through the exchanges. About 85 percent of the people who initially enrolled received subsidies, which went directly to insurance companies during 2014.
Those subsidies were typically based on 2012 income and now must be reconciled with the taxpayers’ actual 2014 income and household size. Some taxpayers will owe the government money, with caps on the amount they have to repay. Others will get money back.
Fresh Complications
Both the individual mandate and the subsidies present complications for tax filing.
One issue with the mandate is that workers won’t get statements from employers that say whether their insurance met the law’s requirements for minimum coverage. The IRS delayed that requirement until the 2016 tax filing year, and the lack of information will limit the government’s ability to enforce the law.
The other complication is figuring out whether any of the exemptions to the penalty apply. They include the unavailability of affordable coverage, membership in a religious sect with objections to insurance, or a long list of circumstances under which the government can issue a hardship exemption, such as domestic violence and homelessness.
Absolutely ’Blindsided’
The subsidies affect substantially fewer people than the mandate -- and could be trickier to navigate.
People who didn’t update their family status and income during 2014 will have particular difficulty. A bonus or a move to a higher-paying job could cause some to owe the government money that they never actually received -- because it was sent straight to the insurance company.
“People are going to absolutely be blindsided,” said Steve Mankowski, a partner at EP Caine & Associates in Bryn Mawr, Pennsylvania, who is chairman of the National Conference of CPA Practitioners’ tax-policy committee. “It can take someone from getting a refund to owing money.”