Source: White House on Flickr.
Statistically the Affordable Care Act, better known as Obamacare, looks like a success based on figures from the 2013-2014 enrollment period. Although an unwelcome enrollment restatement from the Department of Health and Human Services lowered the number of paying members to 6.7 million in November, a number below the initial 7 million target established by the Congressional Budget Office in September 2013, the uninsured rate dipped to 13.4% in Q3 2014, the lowest on record since Gallup began keeping polls on the uninsured rate in 2008.
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Obamacare is ultimately designed to compel consumers to purchase health insurance in the hope of distributing healthcare expenditures over a greater swath of the U.S. adult population. This way premium and medical cost inflation should be under control over the long term. A lower uninsured rate would imply that we're closer to this goal than we were at this time last year.
Obamacare is changing more than just healthcare However, an Obamacare disaster could be looming... and it has nothing to do with the Supreme Court decision expected in June. Instead, this surprise could be waiting for you when you file your taxes.
Even though this year's tax forms will essentially use the honor system and require people to answer whether or not they had health insurance in 2014, things will need to be much more precise when some consumers are asked to fill out Form 8962.
"What's Form 8962?" you wonder? This handy-dandy IRS form asks you to input the amount of subsidies received, premiums paid, and income earned in 2014. If you weren't insured for the entire year then you'll get the task of breaking your subsidies, premiums, and income down on a month-by-month basis.
Form 8962 sample copy. Source: Internal Revenue Service.
You'll receive your pertinent data, including how much was paid to you and your household members in subsidies, via Form 1095-A by Jan. 31, 2015.
What happens if you didn't receive a subsidy in 2014? You're in great shape then as long as you had health insurance. If this is the case you have no additional tax liability from Obamacare. If, by chance, you didn't purchase health insurance in 2014, then you'll be subject to a penalty that's the greater of $95 or 1% of your modified adjusted gross income.
But, based on HHS data 87% of those who purchased health insurance on the federally run exchange known as Healthcare.gov last year did so with the aid of government-sponsored financial assistance, also known as a subsidy. The average subsidy -- subsidies are given to people who make less than 400% of the 2014 federal poverty level (about $46,000 for a single individual) -- equaled $264 per month and lowered the average monthly premium down to $82. Extrapolating this 87% figure out to the 6.7 million paying consumers, it means 5.83 million people saved $3,168 last year via subsidies. That's nearly $18.5 billion in subsidies paid out by the federal government and individual states.
Source: Flickr user Rafiq Sarlie.
Millions of people could be in for a tax shock Now here's the surprise: these subsidy recipients had to estimate what they'd earn in 2014 by as early as October 2013. The actual amount they earned in 2014 probably differed from the income data they gave to the government. This means when taxpayers go to file their taxes on or before April 15, 2015, they could find out their refund is a lot smaller than expected, or worse that they owe money because they underestimated how much they'd earn! If there is a silver lining here, what they owe is capped at $2,500 as long as they remain subsidy eligible.
Of course, the door swings both ways, and those who overstated their 2014 income and wound up earning less could get a bigger refund than expected.
According to H&R Block, which believes 6.8 million Americans received a subsidy last year, half of those who received a subsidy in 2014 will likely have to refund the government some portion of the money they received.
In other words, your 2014 taxes could get a lot more complicated because of Obamacare.
The article The Obamacare Tax Shock That Could Have You Pulling Your Hair Out originally appeared on Fool.com.
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