IRS Surprise for Some Obamacare Subsidy Recipients Next Year

USA Today sums up the situation for hundreds of thousands of taxpayers who may owe the IRS for overpayment of subsidies for Obamacare policies: “Sadly, it’s fair to say some people will see some unexpected, unpleasant surprises on their tax returns next year.”

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If you’re receiving an Obamacare subsidy and you had certain “life changes” over the past year — marriage, divorce, a raise, a new child — chances are, you are going to owe Uncle Sam some cash.

When you file that 2014 tax return next year, the Internal Revenue Service will compare your actual income for the year with the amount you estimated when applying for exchange-based health insurance under the health insurance law.

The next open enrollment period begins Nov. 15. But notices were sent this week to some consumers whose incomes don’t match up to such things as 2012 tax return information.

On Monday, the Centers for Medicare and Medicaid Services said at least 279,000 households reported incomes that still don’t match what the government has on record. Supporting documents are needed by Sept. 30.

What can you do to avoid tax-time problems?

Experts say people need to realize early on that they should report changes in income and other changes in one’s life, such as a marriage, throughout the year. See HealthCare.gov to report “income and life changes.”

Of course, many people may have no idea that they’d need to report changes.

The IRS put out some more details on the issue mid-month.

What should you report? A move, an increase or decrease in income, a marriage or divorce, the birth or adoption of a child, whether you started a job that offers health insurance and whether you gained or lost eligibility for other health care coverage.

Best spots for information: HealthCare.gov and IRS.gov/aca.

Karen Pollitz, senior fellow with the Kaiser Family Foundation, said many people who qualify for these tax credits aren’t working 9-to-5 jobs with regular salaries. So guesstimating one’s income for the coming year can be very tough.

“It’s people in transition. Maybe they’re in and out of work,” she said. Or maybe they’re self-employed.

People who lose a job would want to report that change during the year, as well, because that change can lead to a higher advance payment for the credit.

“Life changes can drive tax changes,” said Mark Steber, chief tax officer for Jackson Hewitt Tax Service.

Steber stressed that people need to make sure to update information via HealthCare.gov or their state insurance exchanges.

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If your income ends up below 400% of the poverty line, you would owe a maximum of $600 for a single filer, and $2500 for a family.

But if your income is over 400% of the poverty line, there is no limit. You will have to repay the entire amount of the difference between what you received as a subsidy and what you actually deserved.

There are already going to be millions of taxpayers who get a nasty surprise when the IRS withholds part or all of their refund to pay the fine for not having insurance — and then bills them if that’s not enough.

Welcome to the Brave New Tax World of Obamacare.

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