With Obamacare Tax Returns Could be Complicated

This year when health insurance will show up on tax returns some people will find filing returns very frustrating. Those who availed insurance subsidies and those who did not have insurance will face new forms with additional questions and complicated math.

“The Internal Revenue Service, in addition to being a tax collection agency, is now a health care agency,” says Michael Greenwald, an accountant and partner with Friedman LLP.

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It won’t be complicated for everyone. Millions of Americans who are covered through their jobs, or who have insurance through other programs like Medicaid, Medicare or Cobra, will have to check an extra box on their tax returns.

“If you didn’t purchase [insurance] on a market place and did not get a subsidy, you’re pretty much done,” says Jeffrey Porter, an accountant with Porter & Associates. “But if you did, you’re going to have to go through a pretty complicated calculation.”

Americans who bought insurance on the exchanges for 2014 received subsidies that helped lower their premium costs. Now while paying taxes they will find out exactly what discount they got and what they have to pay back in taxes.

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People applied for health insurance using their 2012 tax return forms so for those who got salary hikes after that may need to pay back some of the subsidy. Some who made less money would gain by getting a bigger subsidy.

While they wait for their W-2, 1099 forms and other income paperwork, people who received subsidies should also keep an eye out in the mail for the 1095-a, a form that should lay out just how much they received in a premium tax credit. They’ll need the document to file their tax returns. Taxpayers should try to avoid surprises by reporting changes in income to the marketplace as they happen, says Kathy Pickering, director of the H&R Block Tax Institute.

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If you didn’t have insurance in 2014 you would have to pay a penalty. The penalty fee is charged by the month at about 1% of the household income. Though there was a grace period for the first three months. The IRS has no authority to collect penalties, though the amount would be added to future bills which would have to be paid eventually.

People who didn’t have insurance and who weren’t exempt may just say that they had insurance to avoid paying the penalty. Because many employers are not yet required to report information to the IRS about which employees have insurance, some people might get away with it.

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“Everything you put in your tax return is something that they trust that you’re telling the truth,” Porter says. “And of course if they audit you, you will have to prove it.”

Source: Jonelle Marte

Source-Medindia