Wang Solutions

More than 7.5 Million Taxpayers Affected

An apple a day keeps the doctor away…but unfortunately not a penalty for having no health insurance. 2014 was the big year that most Americans had to get health insurance under the Affordable Care Act. People who didn’t comply would get hit with a tax penalty when it came time to file their 2014 tax returns. The size of that penalty, as with most tax-related things, would depend on factors such as income and family size.

After the rush hour of tax filing season died down each year, the IRS conducted a “substantial data review” to see how things went and to figure out how to move forward. The 2015 filing season was no different, except this time around the agency’s results included preliminary stats on the damage done in terms of ACA tax penalties. IRS Commissioner John Koskinen’s letter to Congress on July 17 estimates that 7.5 million taxpayers paid the aforementioned penalty for lacking health care.

That adds up to about $1.5 billion paid in so-called “individual shared-responsibility payments.” In layman’s terms, taxpayers and/or their dependents got dinged for any month in 2014 they didn’t maintain health coverage (or qualify for an exemption). Broken down, the individual payments weren’t huge, but still certainly left taxpayers’ piggy banks with cuts and bruises at tax time, with 95% facing a penalty of $500 or less.

Towards the end, Koskinen’s letter points out that “the vast majority – 85 percent – of taxpayers reporting a shared responsibility payment still reported a refund.” This statement paints perhaps too nice and neat of a picture – sure, a lot of the taxpayers may have gotten some money back, but the fact is that they still also had to pay for not having health coverage, and a lot more people had to pay to have health coverage.

That being said, a number of taxpayers were granted a certain amount of relief via the Premium Tax Credit (PTC), or the APTC – the latter of which is basically advance PTC payments made directly to insurance providers to reduce premiums throughout the year. APTC makes things easier up front, but comes with the stipulation that at tax time, those advance credit payments need to be reconciled with the actual PTC allowed. Around 2.7 million taxpayers claimed the premium tax credit in 2014, with an average credit of $3,400 per taxpayer.

Koskinen’s letter also noted some hiccups and glitches in reporting, e.g. the “5.1 million non-dependent taxpayers [who] did not check the box, claim a health care coverage exemption, or report an individual shared responsibility payment,” along with the “continued erosion of taxpayer services” (hint, hint Congress – don’t reduce the IRS budget further). While paying a health care penalty will probably never get less painful for taxpayers, hopefully the IRS can streamline things so that the penalty-paying process doesn’t require a doctor’s visit for stress!