Confused About ObamaCare Tax Credits? You Are Not Alone

Confused About ObamaCare Tax Credits? You Are Not Alone

Americans For Tax Reform (ATR) recently posted a blog detailing pitfalls individuals may encounter when filing for health care tax credits. Problems arising from inaccurate income estimations stand to create tax-filing nightmares for many Americans. The crux of the problem stems from the process put in place to advance government credits to the insurance exchanges based on income projections.

ATR provides the following hypothetical situation to explain the inevitable problem:

“A health exchange customer selects an Obamacare exchange plan. The government estimates that this taxpayer will earn $30,000 this year, which makes her eligible for a $2000 tax credit. This $2000 is paid to the taxpayer’s insurance company to help with premiums.

The next spring, our customer/taxpayer is filling out her tax return. Unfortunately, the government estimated the taxpayer earned too little and paid too large a credit. She actually earned $40,000, and so only had a $1500 credit coming to her.

Depending on the taxpayer’s income level and availability of verified affordable workplace insurance, she will have to pay back much or all of the $500 overage to the IRS. This means skinnier refunds and maybe even liabilities, and it won’t be the taxpayer’s fault—it will be the government’s fault.”

Given the high potential for incorrect wage estimations due to problems with the HealthCare.gov system, government record errors and inaccurate data provided by tax filers, the scenario described above could become commonplace. For the impacted individuals, tax season stands to become much more burdensome than normal. Ironically, a critical provision of a law, created to benefit the health and well-being of its recipients, has the potential to create much stress for many.

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