According to the tax preparation firm, H&R Block, as many as 3.4 million people, or half of all who received subsidies for health insurance through Obamacare exchanges, will have reduced tax refundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers underwithhold; this can occur if a person works multiple jobs and does not appropriately adjust their W-4 to account for additional income, or if spousal income is not appropriately accounted for on W-4s. s this year.
This is due to the fact that many individuals who purchased insurance policies on the healthcare exchanges received subsidies that were too large in 2014.
As I wrote last week, the ACA is designed in a way that individuals with incomes between 100 and 400 percent the federal poverty level who purchase health insurance on the exchange receive subsidies. However, rather than going to the individual, these subsidies are paid directly to insurance companies, which in turn reduces the price faced be the individual based on their income.
The complicating feature is that individuals need to guess what their income for the year is going to be in order for the IRS to send the insurance company the correct amount of subsidy each month. If they guess wrong, the IRS will pay too much to the insurance company. If this occurs, the IRS will require the individual to pay back the extra subsidy amount.
It does this by altering individuals’ taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. bills at the end of the year, either reducing, or increase tax refunds.
The report claims the average subsidy amount was $208 too high for 2014.
If H&R Block is correct, many people will need to prepare for smaller refunds than usual.Share