Obamacare's confusing tax credits, coupled with fines and the implementation of previously delayed mandates, will make the 2015 tax filing season “one of the most chaotic in years,” a national tax expert and tax preparer warned House lawmakers today.
“I am here today to tell you that the upcoming tax filing season has the potential to be one of the most chaotic in years,” said Ryan Ellis, an IRS enrolled agent and tax policy director at Americans for Tax Reform.
Ellis warned the House Ways and Means subcommittees on Health and Oversight on Tuesday that the confusion could lead to low-income Americans paying an additional $500 or more in unexpected taxes.
Ellis in his testimony focused on tax credits used to purchase insurance at the system’s health exchanges.
It works this way: Middle- and lower-income Americans apply for Obamacare tax credits based on prior-year tax returns and other financial history, and the government estimates the proper amount and sends it to the insurer.
But Ellis said that the estimates have not all been correct and are not being adjusted with income changes of the taxpayer.
From his prepared testimony:
Paul Bedard, the Washington Examiner's "Washington Secrets" columnist, can be contacted at firstname.lastname@example.org.
So what happens if the flawed, confusing process results in a tax credit larger than what the law calls for?
A hypothetical example might help illustrate: a health exchange customer selects an Obamacare exchange plan. The government estimates that this taxpayer will earn $30,000 this year, which makes her eligible for a $2000 tax credit. This $2000 is paid to the taxpayer’s insurance company to help with premiums.
The next spring, our customer/taxpayer is filling out her tax return. Unfortunately, the government estimated the taxpayer earned too little and paid too large a credit. ... She actually earned $40,000, and so only had a $1500 credit coming to her.
Depending on the taxpayer’s income level and availability of verified affordable workplace insurance, she will have to pay back much or all of the $500 overage to the IRS. This means skinnier refunds and maybe even liabilities, and it won’t be the taxpayer’s fault — it will be the government’s fault.