Making tax preparation less taxing
Confused? Here are a few basics you should know when filing your taxes this year.
- About three-fourths of all tax filers only have to check a box to verify they had insurance coverage all year. This is for those who had insurance through an employer or any place else outside the marketplace. On form 1040, the box is on line 61; on form 1040-A, it's on line 38. On form 1040EZ, it's on line 11. Check the box if you had coverage all year, and you're done.
- If you received coverage in the marketplace, you should have received a new form — 1095-A — in the mail from the IRS. Call 1-800-318-2596 if you haven't received it or get it online at healthcare.gov. Do not send it in with your taxes; it is only for informational purposes.
- If you received wrong information on your 1095-A and already filed your taxes before you received corrected information from the IRS, you do not have to file an amended return.
- Individuals who have marketplace insurance will file form 8962 to determine whether the amount received in tax credits is correct. For some people, their tax refund may be less than expected. Others may get back more than they expected.
- Form 8962 is complicated, but there's help:
- If you did not have insurance because you made too little money, you may be entitled to an exemption. Learn if you are exempt at healthcare.gov.
Sources: Department of Health and Human Services, healthcare.gov, irs.gov
The first tax season with Obamacare in full effect has forced many taxpayers to deal with inaccurate documents, unexpected penalties and refund checks far smaller than they had counted on.
It's the first time millions of Americans, including roughly 300,000 Georgians, must report how much money they received from federal tax credits that helped lower premium costs for marketplace plans. And, much like the troubled initial roll out of the marketplace, the imperfect process remains a hurdle for many less than a week before the tax filing deadline.
“Oh my goodness, it’s been a nightmare,” said Lynn Pasqualetti, managing director of HLM Financial Group, an accounting and tax consulting firm in Decatur.
The form for those filers who received tax credits is particularly daunting for people, she said. “If you’re doing it alone, good luck.”
Some consumers are receiving less refund money than they anticipated. Others are learning for the first time that they owe a penalty. One of Pasqualetti’s clients learned that she owed back the entire amount of her subsidy — $1,224.
On average, clients of national tax preparer H&R Block who don’t have health insurance face a penalty of $172 — roughly 80 percent higher then they had expected, the firm reported earlier this year. That’s because the penalty under the health care law for not having insurance in 2014 is actually the higher of two numbers, either $95 or 1 percent of a person’s income. Those penalties will rise over the next couple of years.
The tax filing giant also announced that more than half of those with insurance in the marketplace were seeing a 17 percent decrease in their refunds, because they had miscalculated income when they first registered.
‘They are angry’
Miscalculating future income has been the biggest problem, Pasqualetti and others say.
Nearly nine in 10 Georgians who bought plans through the Affordable Care Act marketplace last year qualified for federal tax credits. Those credits are based on a person's estimated income for the following year.
Here’s the problem. People who made more money than they estimated received bigger tax credits than they were supposed to. So those individuals end up having to pay that surplus back to the government.
It’s especially hard for people who do contract work or who work often low-paying jobs with unpredictable hours, such as construction, landscaping, baby sitting or home health aides to estimate income from year-to-year.
“I can’t tell you how many hours we have spent going back over their incomes and the forms, and then they are angry because they will have to pay back some money,” Pasqualetti said. “I tell them, ‘We’re the messenger.’”
Federal officials say problems are to be expected with the health care law being so large in scope and still new.
‘I’m still confused’
Then there are the more than 800,000 people who received incorrect tax information from the federal government earlier this year.
Cindy Allen of Peachtree City is one of them.
Allen, 56, signed up for health insurance last fall for herself and two teenaged daughters. She only needed it for a few months until she got a new job with employer-based insurance, but her choice is still causing her headaches more than eight months later.
Allen received a letter in February from the IRS telling her that it had sent her incorrect information. She couldn’t tell whether she would owe money, so she called her accountant.
Then came a second letter from the IRS. This said she had overpaid by $97 for the entire year.
Federal officials have said people who received flawed information should now have received corrected forms and will not have to file an amended tax return.
The marketplace currently has a special enrollment period, until April 30, for people who only learned as they filed taxes that they would face a penalty next year if they do not have insurance. The Affordable Care Act's individual mandate requires most Americans to buy health coverage or be penalized. (The enrollment extension does nothing to lower the penalty for the 2014 tax year, but it will enable some people to avoid a penalty next year.)
Even with the new, corrected documents, Allen said it’s still not clear whether she will get that $97 refund.
“So I’m still confused.” she said. “I just really want to never have to deal with this again.”
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