Tax Refund Delays Due to Obamacare

Edrie Pfeiffer
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Edrie Pfeiffer, Bankruptcy & Divorce Attorney

This is a freelance article from Gemma Herbert  

Almost six million people who were granted a subsidy for the health insurance purchased on the federal or state insurance exchange could find that their 2014 tax return and refund is delayed this year. This is owing to a new requirement for all those who purchased subsidized health insurance, to fill in a new form called Form 1095 – A Health Insurance Marketplace Statement (which can be obtained from your insurance exchange). History is shown that when new forms are introduced into the tax filing process, taxpayers can expect significant delays with respect to their tax refunds.

Form 1095-A was made available to the public in January, 2015. Taxpayers will need to use the information contained therein to complete another new tax form: Form 8962 Premium Tax Credit (PTC). The latter is necessary to ascertain the amount of your PTC and to reconcile it with any Advance Payment of the Premium Tax Credit (APTC) paid. The form can also be used to claim the remaining amount of any subsidies you were entitle to but did not receive, as a tax refund on your 2014 tax return.

The new forms could mean that you obtain your return weeks after you expected; experts advice that taxpayers refrain from obtaining a tax refund anticipation loan, which guarantees an earlier refund but which have high interest rates and fees that wrest from possible benefits. The experts at CBS News recommend using e-file, which could speed the process up by weeks.

Obamacare will affect taxpayers in additional ways, making the amount refunded far less predictable than in past years. Those who have qualifying health care coverage simply need to indicate this fact on their tax returns, yet those who have obtained their coverage from state or federal exchanges may find that their refund is smaller, or that they even owe the IRS. This is because the APTC was granted based on estimated income; circumstances may change during the year, with factors such as last-minute bonuses or unexpected raises creating a discrepancy between one’s estimated and real annual income.

To get around the need to pay more taxes than expected, many persons have been advised to claim 80%-85% of the tax they estimated they would be receiving, to avoid the nasty shock of being told they owe the IRS. Lack of awareness is another problem, since many Americans are unaware that advance premium payments were made on an estimate, and that they should be prepared for the consequences of any disparity with their actual income. This can have serious consequences for the average family, who may have taken out loans or undertaken specific financial obligations under the premise that they would be receiving a substantial refund.

Taxpayers should additionally be aware of possible variations in the penalty for not signing up for 2014 coverage. Many believe the fee to be just $95, but the actual amount to be paid is either $95 for every family member without coverage, or one per cent of the household income (above the minimum filing amount), whichever amount is higher (the maximum amount payable has been set at the national average premium for a bronze plan). Couples, meanwhile, should ensure that they don’t commit the mistake of filing jointly if one spouse has coverage and the other doesn’t. This is because when calculating the amount of the fee owed, the incomes of both partners will be taken into account, and one percent of their income minus the minimum filing amount for a couple, will be taken into account.

Taxpayers should also be aware that in 2015, the penalties for not taking out insurance will rise to $325 per person (50% of this amount will apply to children aged less than 18). The maximum penalty applicable in this type of case is $975. The amount of the penalty owed depends on various factors, including age, number of dependents, etc.

Taxpayers may be able to avoid penalties if they qualify for one of 33 stipulated exemptions (which include not earning a high enough income, living abroad or belonging to a stipulated religion). The open enrollment period, during which people can obtain health insurance in public markets and avoid penalties in the future, ends on February 15, 2015.

In addition to greater bureaucracy and the need to make tedious calculations, the IRS has a smaller budget and therefore has a smaller staff for conducting audits, collecting overdue tax bills, etc. It is estimated that the organization lacks the capacity to answer over the half the calls it receives; the lucky few who do get through, meanwhile, can expect to wait on hold for 30 minutes or more during peak times of the year.

Taxpayers are advised to seek professional help to ensure they do not receive a nasty surprise when it comes to their tax returns; new forms will inevitably delay the speed of your return, but loss can be minimized through careful planning and by taking into account any contingencies that can raise your expected income. Filing your tax returns early, meanwhile, gives you extra time to resolve any issues which may arise (such as the need to provide further documentation, etc.).

Protect your refund from creditors by contacting Attorney Edrie Pfeiffer today at (757) 320-2010