Obamacare Taxpayer Filing Implications For The New Tax Season.
In a press conference earlier in January, to announce the start of the 2017 tax filing season, which began on Jan. 23rd, the IRS said it expects more than 153 million tax returns this year.
More than 70% of taxpayers will receive a refund in 2017, with 90% or more of refunds issued in fewer than 21 days after returns are submitted, the IRS estimated. In 2016, 111 million individual tax refunds were issued.
Most filers who received government subsidies to buy Obamacare state exchange plans had to pay money back to the IRS last year, according to an H&R Block analysis released in 2016 that looks at the health law’s two full tax seasons. If a taxpayer projected a higher annual household income than they actually claimed in their filing, they may owe tax credits back that they received by purchasing an Obamacare policy or their state’s exchange plan. One other cause for having to repay tax credits is due to claiming eligibility, but not being eligible due to having access to affordable employer coverage.
The tax-prep giant studied its own massive customer base and concluded that two-thirds of its filers who got subsidies from Obamacare were overpaid during the course of the year, and owed money back to the IRS on the April 15th deadline. 
The ‘Affordable’ Care Act, better known as Obamacare, mandates Americans — unless they’re qualified for an exemption — to carry health insurance coverage or pay a penalty when filing their tax returns. The IRS says most taxpayers simply need to check a box to verify that they have insurance. For others with more complex answers, the agency offers tips on IRS.gov/aca.
IRS Commissioner John Koskinen said the number of people receiving Obamacare subsidies during the last tax season (2015 tax filing), was up from 3 million in 2014. For that year, customers got more than $10 billion in tax credits, with an average subsidy of $3,430 annually, according to the IRS. Obamacare subsidies are available to wage earners with low and moderate incomes. People who earn less money get more in assistance than higher earners.
Koskinen wrote that about 6.5 million taxpayers last tax season reported owing a total of $3 billion in such tax penalties for failing to have coverage in 2015. In contrast, about 8 million people owed an Obamacare fine for lack of coverage in 2014. Fines related to lack of coverage in 2014 totaled $1.6 billion.
CNBC reported that some 12.7 million people claimed one or more exemptions from the ACA-coverage mandate when they filed their taxes last year. “The exemptions are wide ranging and can include having very low income, being incarcerated or having a close family member die recently,” according to CNBC.
The primary reason for the decline in Obamacare fines last year appears to be that millions of Americans experienced a significant drop in income, which ironically is a direct result of the economic damage inflicted on businesses by the financial strictures of the Obama ‘Affordable’ Care Act (ACA).
CNBC also reported that the new Republican-led Congress last month began taking steps toward repealing key parts of the ACA, which include the funding of premium subsidies and the individual mandate. For the middle class’s economic sake, let’s hope the effort is successful.
The National Taxpayer Advocate has released their 2016 Annual Report to Congress. The report contains data regarding Obamacare premium tax credits (PTC) and individual shared responsibility payment (ISRP) filings – The Obamacare tax penalties for not having health coverage.
The report identifies a number of issues that the IRS has faced or is facing involving the Obamacare ACA and makes a number of recommendations. These include:
- The IRS seems to have largely addressed early problems of Obamacare tax overpayments through outreach conducted to tax practitioners and software providers.
- Reconciliation of PTCs (the Obamacare low-income subsidies) with advance PTCs (APTCs) continues to cause problems, and has risen to the fourth highest category of Taxpayer Advocacy Service cases, accounting for nearly 11,000 cases in 2016. The primary problem seems to be the IRS holding up processing of returns when taxpayers fail to file a form 8962 and reconcile their advance PTC with their PTC.
- Processing of tax filings is delayed when Obamacare APTC recipients incorrectly file form 1040-E, which does not allow for APTC reconciliation.
- The IRS is taking action to address “silent returns,” which do not either check the box indicating full-year coverage, claim an exemption, or paying the ISRP tax penalty. The IRS will send a letter 12C requesting more information in these cases and assess the ISRP if no response is forthcoming.
- The Taxpayer Advocate recommends that the IRS should ease the burden on individuals claiming the religious exemption by allowing individuals exempt from the Social Security and Medicare taxes to simply indicate this on their form 8965 rather than requiring them to apply separately for an Obamacare ISRP religious exemption.
- The Taxpayer Advocate recognizes that taxpayers who receive large Social Security Disability Payments may have to repay Obamacare APTC subsidies they received. There is no apparent administrative fix for this problem.
- The IRS needs to provide specialized training to its newly established Obamacare ACA Business Exam unit, which handles employer ACA returns.
- The IRS may not be adequately prepared to handle Obamacare ACA employer filings. It had expected 77 million 1095-Cs for 2016 and received 104 million or 35% more than expected. Of these Obamacare employer filings, 5.4 percent were then rejected.
The IRS, in a statement regarding taxpayer compliance issues has said: “The IRS will follow its normal compliance approach to filed tax returns. During its normal processes, the IRS routinely follows up on the accuracy and completeness of tax returns and may ask taxpayers to substantiate the information on their tax returns. These inquiries sometime occur before processing refund requests and other times after the processing of refund requests.”
“The vast majority of taxpayers voluntarily comply with their tax responsibilities—our income tax system is built on voluntary compliance,” the IRS said.
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