Tax Refunds: Some Take Hit or Get Bump from Health Law

Our favorite time of year — tax time. We all know the deadline is April 15. Those who  received help in paying for health insurance under President Obama's Health Law are seeing the direct effect on their refunds. 

Health Law Effect on Tax Refunds

The law offers tax credits so people without access to job-based health insurance can buy private coverage. Because these subsidies are tied to income, consumers must accurately estimate what they will make for the coming year, which has been a challenge for millions of people. 

How it works: guess on the low side, get more help now with premiums, but owe money later at filing time. Overestimate income, expect a large refund in return. Many consumers may not have understood that is how it works when they signed up.

Some experts caution that such complications could discourage uninsured people from getting covered. The average refund is large enough to offset any repayment in most cases, according to the Treasury Department.

White House on Health Law Tax Effect

The White House says the Affordable Care Act is working even better than anticipated. But this is the first year that the complicated connections between the law and the tax system are playing out for consumers.

Earlier in the filing season, H&R Block (tax prep company) reported that 52% of its customers who got health insurance subsidies owed money back. Repayments averaged $530, reducing expected refunds by 17%.

On the other hand, about 1/3 of customers with subsidies overestimated their incomes. As a result, their refunds went up by $365 on average.

In a recent study, the nonpartisan Kaiser Family Foundation estimated that half those eligible for a subsidy would owe money, while 45% would receive a bigger refund.

• Estimated average repayment was $794, and the refund was $773.
• Estimates were based on an analysis of census data about income changes among people likely eligible for healthcare subsidies.
• Kaiser calculated that overall between 4.5 million and 7.5 million households have to account to the IRS for their subsidies.

Future of Tax Refunds

This year is a learning experience for consumers and the government. Issues like this make people unsure of how much financial help they are going to get. It could be a discouragement for some people to sign up. To avoid tax surprises, consumers should contact the health insurance exchange if their income changes during the year.Some people complain there is no one to talk to who can coordinate when situations like this come up – a system offering this type of help must be implemented.