Wednesday, April 29, 2015

Mixed Signals on Obamacare Penalties

H&R Block reports:
Almost two-thirds of tax filers who received insurance via the state or federal insurance Marketplaces had to pay back an average of $729 of the Advance Premium Tax Credit (APTC), cutting their potential refund by almost one-third, according to analysis of filing data by H&R Block (NYSE: HRB), the world’s largest consumer tax preparation company. Conversely, one in four was due additional premium tax credit and therefore had an increase of an average of $425 in their refund.
Amazingly, most of those who owed refunds were not advised to get their withholding down so they would have little or no refund coming. The average refund for these folks was $2,195. Apparently they are not so poor that $180 missing from their monthly pay check is of concern. Either that or no one has ever talked to them about how easy it is to change their withholding status.

Another big surprise was that penalties owed averaged $178--almost twice the touted $95 flat fee penalty. It will be even worse for the 2015 tax filing: $325 per adult.
While the average penalty of $178 at year’s end was almost double what many assumed was a flat $95 fee, [Mark] Ciaramitaro[*] said tax filers can expect the flat fee to increase to $325 per adult, or it could be 2 percent of household income minus the filing threshold, whichever is greater. For example, the penalty this year for a family of four earning $60,000 was around $400, but next year that increases to $975. The Year 2 penalty could drive increased interest in exemptions as well as marketplace enrollments, Ciaramitaro said.
However, TurboTax found opposite results. Insurancenewsnet reports:
The majority of taxpayers (81%) with marketplace health insurance plans received subsidies. Despite concerns that marketplace users would have to pay back large amounts of their subsidies because of not reporting changes in their income, the average range of premium tax credit payback was lower than industry estimates prior to tax filing season.
. . .
33% took an advanced tax credit and got an additional subsidy when they filed their taxes, at an average range of $207 - $257.
44% took an advanced tax credit and were required to pay some money back, at an average range of $315 - $365, because they underestimated their projected income for 2014. This is a lower amount than some previous industry estimates.
5% took an advanced tax credit and saw no adjustments when they filed their taxes.
. . .
The average health insurance penalty for taxpayer households was at an average range of $88 – $138. 
For uninsured single filers, 43% paid the minimum $95 penalty, and 57% paid 1% of their annual income.
So, for TurboTax only 44% had to pay something back. For H&R Block 66% had to pay something back. That's a 50% difference.

For TurboTax 33% got an additional subsidy, and for H&R Block only 25% got an additional subsidy. That's a 25% difference.

For TurboTax 5% saw no tax adjustment, and for H&R Block 13% saw no tax adjustment. That's a 250% difference.

It sounds like somebody is spinning data. Maybe it's a difference in clientele for the two firms. But, TurboTax data sounds mushy. Having an average range ($88-$138) instead of a clear average ($178) as H&R Block reports indicates a lack of clarity in reporting data. Also, TurboTax gives no information on if the money paid back came from tax refunds or will be collected via normal IRS legal/criminal pressure.

In any case, both firms say 2015 will be more difficult for tax filers.

H&R Block:
“This season saw general ACA-related confusion, incorrect or delayed 1095-A information documents, and overall anxiety regarding refund impacts,” Ciaramitaro said. “With many taxpayers now receiving coverage documentation, more taxpayers who will experience APTC reconciliation and the doubling of penalties, unfortunately we should expect taxpayer anxiety and confusion to continue next year.”
The penalty for going without health insurance in 2015 increases to $325 per adult (up to $975 for a family) or 2% of income, whichever is greater.
*vice president of H&R Block health care and tax services

H/T Byron York


MAX Redline said...

WTH? Yeah, that TurboTax data sure looks mushy (hope they do a better job on peoples' tax returns). I think the Block data's closer to the reality.

I've long looked at taxes as a game: they have your money; how much can you legally get back? Accordingly, I try to minimize the possibility of getting a refund - those folks receiving an average refund of $2195 have effectively lent the government that cash, interest-free.

One thing that was especially galling this year was the HR Block ads that constantly brayed "It's refund season!" Well, it's refund season if you're an idiot....

T. D. said...

I was floored to find the two different accounts of the data. I find H&R Block more convincing because they had more data and more specific data.

And you're absolutely right. Why isn't anyone telling these people to lower their withholding?

Though, I think you have pointed out, that the IRS can be much more hardball on paying back subsidies (as opposed to paying penalties which can only come voluntarily or via tax refund money).

I should have given you a H/T too since you have been on this for a long time and raised my awareness. Thanks!

MAX Redline said...

Agreed, TD - I think the HR data's more specific and thus more convincing. TT seems to be just thrashing about like goldfish in the reeds.

On withholding: I've never understood why so many folks think "getting a refund" is so great. I guess that's how they've been conditioned to look at it. People are actually pretty easily trained. Well except for folks like you and me; we're kind of the outliers. I'd just rather keep the money than loan it with no interest to the feds.

Yep, I did try to warn of IRS forcing repayment; some folks are better off not buying health insurance unless they have to (you can't be denied because of a preexisting health condition) because if you do your taxes right and get little to no "refund", they can't ding you for diddly.

Too many people just don't think.

T. D. said...

Do you think most people are like sheep without a shepherd politically and economically? They don't think much or do research just do what is common to do. It seems that for most people, it's hard to break out of standard patterns. The only good thing is that down through the ages most standard patterns had common sense behind them. But, now with the view that youth is better than age and the future better than the past, they look to their peers for counsel rather than those who have more experience and insight.

MAX Redline said...

Do you think most people are like sheep without a shepherd politically and economically? They don't think much or do research just do what is common to do.

In my view, you pretty well nailed it. They don't think much. They react. And when conditioned to get free stuff....

T. D. said...

Always like to have my hunches confirmed by you, Max. :-)

MAX Redline said...

T. D. said...

Max, a death spiral indeed. How dispiriting for the best health care system in the world. Soon to plummet to barely above the others, if not below the top tier.