Next Big Obamacare Shock May Come at Tax Time

People who use subsidies to help pay for their Obamacare policies may get a nasty shock at tax time, when the Internal Revenue Service could hit them with a big demand to repay the money.

While it's in the law, it's still likely to make plenty of Obamacare subscribers angry at the IRS.

"If I were the IRS, I would be very concerned that I’m going to be viewed as the villain when people have to pay back money the government gave them for health insurance,” says Chris Condeluci, who served as Senate Finance Committee GOP tax counsel when Obamacare was being drafted.

According to the tax code, insurance buyers must be sure to alert insurance exchanges to life changes that affect their incomes through the year, reports Politico. 

A new job, promotion, or anything that causes income to go up could result in a demand to return the tax credits, if the life change isn't reported, according to the new rules.

Recipients who lose income could get a tax refund when next year's taxes are calculated in 2015, but more likely, they'll get a bill. For example, in California, 38 percent of people who get tax credits to pay for their healthcare are expected to get bills totalling more than $850 each if they don't report income changes.

Editor's Note: 22 Hidden Taxes and Fees Set to Hit You With Obamacare. Read the Guide to Protect Yourself.

Many people, instead of having to cough up the money for the bill, instead will see smaller income tax returns, said University of California Berkeley professor Ken Jacobs, who co-wrote a study on the issue for healthaffairs.org.

Taxpayers can choose to pay the full price for their Obamacare policies and then collect refunds for the tax credits they passed up when tax time rolls around. However, many people choose to take the tax credits when picking insurance plans to help absorb the costs.

Midyear changes are often favorable to taxpayers, however, said Theresa Pattara, director of tax policy and practice for H&R Block. But with the Obamacare exchanges, events that change an income, such as a pay raise, must be reported personally. Many people are not used to doing that because employers usually handle adjusting workers' taxes after they get a raise.

But not all taxpayers will have to pay back all the money. Those within 200 percent of the poverty line will have their repayments capped at $300 per person and $600 per family, an amount that increases until one is at 400 percent of the poverty line, for a maximum of $1,250 per person and $2,500 per family.

Those who earn more than 400 percent of the poverty level, or $45,900 per person and $94,000 for a family of four, could have to repay their entire tax credit.

Related Stories:

• 20 Hidden Tax Hikes in Obamacare
• Up to 17 Million Americans Eligible for Obamacare Tax Credits