I’m referring to the tax/penalty/individual shared responsibility payment that you’re hit with if you don’t have Obamacare-compliant coverage for 2014.
If you actually got Obamacare coverage through the exchanges, sorry. You need to wait for the form, and you may need to file for an extension to October.
The Obamacare tax is finally biting Americans this year, but it’s mostly toothless.
As taxpayers fill out returns leading up to Tax Day on Wednesday, they are for the first time encountering a few new lines of text asking whether they had insurance last year and if so, whether they used federal subsidies to buy it.
Yet the majority of the uninsured won’t end up having to pay up. This year at least, the penalty’s bark is a lot worse than its bite. Here’s why:
1. The IRS has only two ways to collect the tax.
There are only two ways the IRS can get the penalty from the uninsured: By taking it from their tax refunds or receiving it voluntarily. The agency isn’t allowed to use other tools normally at its disposal, like garnishing wages or issuing liens, to collect the penalty for being uninsured.
2. The tax is bigger than most people think, but still relatively small this year.
Most taxpayers think the uninsured penalty is $95 this year, tax assisters say, since that’s been the number most often reported in the media. That’s far below the cost of insurance premiums, so in the minds of some it makes sense to pay the penalty instead.
But that’s only part of the story. The uninsured must pay either $95 or 1 percent of income above the filing threshold, whichever is greater. That means someone earning $50,000 would pay about $400.
3. There are lots and lots of exemptions.
Do you have big medical debt? Was there a death in your family? Did you experience domestic violence?
These are some of the roughly 30 reasons an uninsured American could qualify for an exemption from the penalty. There are regular exemptions and hardship exemptions, some provided within the text of the law passed by Congress and others spelled out in rules by the Obama administration.
About 30 million Americans — roughly one-tenth of the population — remain uninsured, yet all but 7 million will qualify for exemptions from the penalty, according to projections last year by the Congressional Budget Office. Those estimates are for next year, but the exemptions are the same now.
So you may be able to get out of paying the tax this year, and in general, you should avoid having any refund for the IRS to take away from you.
A LifeHealthPro measure of the consumer tax trauma inflicted by the Patient Protection and Affordable Care Act (PPACA) shows the level of pain may be staying about the same, or falling slightly.
The staff of LifeHealthPro computes the measure, the PPACA 1095-A tax pain index, by searching three major Web-based tax forums for the terms 1095, 1095-A and 1040. We then divide the sum of the number of threads referring to 1095 and 1095-A that were started during the previous week by the number of new threads referring to 1040.
The “pain index” fell to 11 percent during the week ending April 8, down from 13 percent during the week ending April 1 and rising from 12 percent in mid-March.
Earlier in the tax season, tax preparation firm executives said business was slower than they’d expected.
When this reporter passed by tax preparer offices in North Kansas City, Mo., last week and New York City this week, little activity was evident. Around 7:30 p.m. Monday, a tax preparation kiosk in a shopping mall in Jersey City, N.J., was helping one client and had no clients waiting for assistance.
Of course, it can be that people are filing for those extensions and dealing with it another time.
Tax preparers say the filing season has definitely been more complicated because of the health coverage provisions. The most vexing issue: Helping the filers who underestimated how much they would earn annually when they first bought subsidized insurance on the exchanges, triggering a larger premium credit than they should have received.
They now have to reimburse the government for those overpayments, usually in the form of a smaller tax refund. An H&R Block study in February found that more than half of Obamacare enrollees would have to pay back some of their subsidy, although a Treasury Department official said most will still get a tax refund.
Jennifer MacMillan, a California-based tax professional credentialed by IRS, said one of her clients owes about $11,000 because he qualified for a large subsidy when he first enrolled, then got a promotion at work and received a raise that pushed him over the subsidy-eligible threshold.
Yeah, gotta watch out for the subsidy cliff. That’s a doozy.
As noted in the article, that penalty will just be worse next tax season. And the subsidy problem never goes away.
Then, there are the Obamacare tax scams
For all stripe of rip-off artist, tax season might as well be called open season. Scams are legion, and navigating a solution after the fact can be somewhere between maddening and negotiating an Iran deal that everyone likes. Last month the IRS issued a warning that received scant attention from the media, but nonetheless could impact millions of taxpayers this year — particularly targeting low-income, elderly and Spanish-speaking taxpayers.
The scam takes advantage of the Individual Shared Responsibility Provision of the Affordable Care Act. It’s a penalty, but one with many exemptions. Because it is somewhat complicated, the new provision has become the object of many fraudsters’ affections, especially during tax season.
For an unscrupulous tax preparer the Shared Responsibility penalties can add up to quite a caper. How so? Because the scam involves A) taking advantage of the inherent complexity of the exemptions and B) pocketing the penalties. Sometimes the scammer claims he or she can reduce the cost of the penalty because they have created a pool for leverage, or they simply claim that paying them directly instead of the government is “how it’s done.”
The only thing you need to know is: That’s not how it’s done. The easiest way to avoid this scam is to remember one rule: Only pay the IRS. Period.
That’s true of all the tax scams, btw.
Anyway, I hope this helps if you have to deal with the tax this year. Good luck.
Friday Trumpery: No Exemptions for State-Run "Private" Pensions [UPDATED]
Obamacare Watch: 30 March 2014 -- Voter Registration, Incompetency, and Not Thinking Things Through
Obamacare Watch: 31 Mar 2014 -- Answering Jonathan Bernstein