According to a national taxpayer advocate, the Affordable Care Act could have some impact to income tax, and many individuals aren’t aware of the changes. Keeping up with tax laws can be difficult, but individuals purchasing health insurance through the new exchanges need to understand the subsidies they benefit from. Those subsidies – along with changes in income or family situations – could increase or decrease tax burdens.
Texas tax payers who are eligible for a refundable tax credit associated with insurance purchases can opt to use that credit in advance against the price of a qualifying policy. Many people are likely to take advantage of such an option, as it reduces the amount of money that needs to be paid immediately. However, a change in status throughout the year could alter the available credit.
According to the national taxpayer advocate, a new job, a raise or moving a child off your plan could result in a reduction in the subsidy you qualify for. Reducing the subsidy reduces the tax credit. If you don’t let the health care exchange know about the change, they may keep applying the subsidy to your policy premium. At the end of the year, that could result in reduction or loss of your tax credit.
For the 75 to 85 percent of individuals who receive a tax refund, the loss of credit may only mean a reduced refund. For those who receive a small refund or no refund at all, the loss of a credit could mean they owe taxes. Either way, individuals who plan for the decreased credit are less likely to have an unpleasant surprise during tax season.
Those who owe a tax due to a reduced credit may be able to put off payment until next year, says the taxpayer advocate. According to the advocate, the amount can be collectible through future refunds for up to ten years.
Source: Star Telegram, “Taxpayer advocate: Avoid health-care tax surprises” Carole Feldman, Jan. 21, 2014