Why you may REALLY need to consult a tax advisor to prepare your 2014 income tax returns
Nasty Obamacare provision may cause millions to owe money this April 15th
Obamacare enrollees getting subsidies for their healthcare coverage may owe money. For their 2014 tax return, taxpayers must reconcile their 2014 actual income with what they estimated when applying for Obamacare (in some cases over a year ago). If you underestimated your income, you will either get a smaller tax refund or owe the IRS money with your Form 1040.
As a reminder, Obamacare subsidies are really tax credits based on annual income. Unlike typical tax credits, individuals benefited before filing their 2014 return. By this April 15th taxpayers must reconcile their estimated income when applying for Obamacare to what they actually earned. To extent a taxpayer underestimated what they’d earn, they will owe money (or receive a smaller refund).
The Obamacare sign up period started October 2013. When applying for Obamacare, many of those who enrolled had to estimate their 2014 income. And let’s face it, many of us don’t know what we’ll earn next year. If your earnings improved, Uncle Sam expected you to report those changes so a revised subsidy could be recalculated. If you didn’t “recalculate,” don’t worry. (Read on!)
So what’s the potential damage? The average annual subsidy was $3,100 (or approximately$264 a month). Approximately 85% of the almost 7 million Obamacare enrollees received insurance subsidized premiums. If you remain eligible for subsidies but underestimated 2014 earnings, your liability is capped at $2,500. This complicated formula has an income based eligibility of $45,900 for individuals and $94,200 for families.
Obamacare enrollees should have received Form 1095-A in the mail by Jan. 31, noting the policyholder and his/her monthly subsidies (this information should also be available in the policyholders’ healthcare.gov online account). Taxpayers must use this Form 1095-A information to complete Form 8962, which calculates any potential moneys owed for healthcare subsidies.
Suffice to say, this calculation and resulting tax form compliance is tricky. Consumers benefitting from this subsidy would be wise to consult a professional to calculate their taxes correctly.