Tuesday, February 10, 2015

Will Obamacare Cost You a Tax Penalty?

What you see on your tax return this year depends on your health plan subsidies.

Posted By on Tue, Feb 10, 2015 at 3:17 PM

A friend of mine was doing his taxes and was factoring in the subsidy he had received by getting a better deal on health insurance through the Affordable Care Act, otherwise known as Obamacare.

He found a nasty surprise – he’d have to pay $700 extra to the U.S. Internal Revenue Service.

It may be that lots of taxpayers are in similar situations since this is the first tax year the act has been a factor. I haven’t done my taxes yet and I did not get my health care through an exchange so I don’t know (and doubt) I would be affected. But plenty are.

I went to the Web and found a New York Times article that summed up the situation. Here some highlights:

• If you had health insurance and did not get it through an exchange you just need to check a box and nothing is likely to be affected. The same is true if you got insurance through an exchange but did not get any premium subsidies.

• If you did get insurance through a federal or state exchange, you will get a form in the mail called a Health Insurance Marketplace Statement that will list such things as premium tax credits. If you want to claim the credits, you will need to fill out a Form 8962 and include it with your tax returns.

• If you received too much in subsidies you may have to pay some of it back with your taxes. For example an individual making $45,960 would have to pay all the subsidies back since those earnings are 400 percent of the federal poverty line which is the basis the federal government uses.

• If you are not exempt, you will have to pay a penalty based on a flat dollar amount or a percentage.

• If you refuse to pay, the IRS can’t go after you with its usual arsenal – levies, wage garnishment, liens or criminal indictments. But it can cut the refund you may be due.

Need help? Get in touch with the IRS Volunteer Income Tax Assistance program. Please don’t ask me since I am not an accountant but do let me know if I got any of this wrong so I can fix it.

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