Many would simply classify the Affordable Care Act (ACA) as a health care law and leave it at that. Truth is, the ACA is just as much a tax law as it is health care law. From new surtaxes to tax credits to IRS administration, this law is going to keep tax practitioners like myself busy for a long time. We have spent hours on end learning the law as it applies to both our individual and small business clients.

Whether you call it the Affordable Care Act or Obamacare, the law itself has created all kinds of controversy – the latest involves new marketplace enrollees who have pre-qualified for subsidies applied against their monthly insurance premiums. The subsidies are essentially advanced tax credits based on the enrollees’ estimated 2014 income. These consumers will receive a Form 1095-A by January 31 listing who in their household had policies in place during the year and how much they received in subsidies. That information will then be used to complete Form 8962 which asks for details related to insurance, subsidies and will also reconcile the advanced payments received to the actual premium tax credit. This is were things can get “sticky”. If an enrollee greatly underestimated their income, and therefore received a higher advanced subsidy than they were actually due, they may find themselves with a reduced 2014 tax refund, or worse, tax due the IRS. H&R Block is estimating that one half of the 6.8 million taxpayers who received subsidies in 2014 will have to pay back money to the U.S. Government.

Further, those who remained uninsured in 2014 will face penalties of $95 per adult and $47.50 per child (up to $285 for a family) or 1% of family income, whichever is greater. Going forward, those penalties will rise in 2015 to $325 per adult, $162.50 per child (up to $975 for a family) or 2% of family income, whichever is higher.

Faced with the daunting task of administrating the Affordable Care Act while simultaneously getting hit with budget cuts, the IRS has already warned that up to 47% of calls to the service will remain unanswered during filing season. As the Wall Street Journal suggests, its going to be a “tricky tax season” .

Stephen Osborne, CPA
Certified Public Accountant
sosborne@mo-cpa.com