ACA Fun Facts: Five Ways that Health Reform Will Affect Tax Refunds

If you’re still not clear on how the Affordable Care Act will affect your tax situation, don’t worry - you’re not alone. Brian Haile, our SVP of Healthcare Policy, has put together a list of five things taxpayers should be aware of when it comes to the ACA and how the Tax Pros at Jackson Hewitt can help.

Penalties may be more than many taxpayers think: Folks may already know that if they don’t have health insurance in 2014, they may face a tax penalty when they file their taxes in 2015. And while the penalty could be as low as $95, for those who fail to get “minimum essential coverage” that tax penalty that is considerably larger. The IRS will deduct this penalty from the next year’s tax refund.

Our ACA X-Ray provides a customized penalty calculation for our customers, and our penalty
worksheets help to illustrate this issue more broadly, so taxpayers can be clear on what penalty amount they may be facing if they don’t secure health insurance. 

Medical deductions may change for some taxpayers: Customers under the age of 65 will face new limits on excess medical deductions on their 2013 returns as a result of the ACA.  The number of individuals to whom this may apply may be small, but the impact to those who are affected will be substantial -- as will the effect on their refund.

Estimating coverage costs can be tough: Customers who want to purchase a qualified health plan may have a hard time estimating their premiums right now at healthcare.gov, so they may be unsure how much of their refund to "set aside" to help cover the new premium obligations.  Jackson Hewitt’s ACA X-Ray along with licensed agents at Getinsured help give tax prep customers complete, timely information in a way that they have not been able to get it through healthcare.gov.  This is particularly important now since employers have already started telling employees that they have dropped or plan to drop employer-sponsored coverage. 

The tax credit isn’t for just ANY insurance: Many customers may have heard that they can claim the new tax credit for any coverage that they purchase in the individual market.  But, this is not true: the ACA clearly limits the credits for qualified health plans sold through the new exchange marketplaces.  Those who are not clear on this point are in for a financial shock next year.

Incorrect estimates of income and costs may mean adjustments to next year’s taxes: Customers who accept the advance payments of the tax credits for qualified health plans will face the "reconciliation" process next year.  This is the process in which they compare their actual earned income versus what was estimated when calculating the tax credit amount.

If they received a larger credit than they actually qualified for, taxpayers will need to repay some of that credit back. The IRS will deduct this reconciliation balance from the 2014 tax refund. However, the opposite is also true. If a taxpayer overestimated their income and received a smaller credit, and ended up earning less money than they thought in 2014, they could be in for a larger refund.

The ACA means more things for you to figure out. We’re here to help. Find out more about the ACA at JacksonHewitt.com or visit your local tax professional.