About 1.4 million households that got financial help for health insurance under President Barack Obama’s law failed to properly account for it on their tax returns last year, putting their subsidies at risk if they want to keep coverage.
The preliminary figures were released by the IRS late Friday afternoon, a time when the government often reports unfavorable developments. A spokeswoman for the Department of Health and Human Services doubted there will be a major impact. HHS believes most of the people affected no longer have health law coverage.
Still, it’s a potential complication as the Obama administration strives to increase enrollment for 2016 in the face of rising premiums and skeptical consumers. Tax issues highlight the difficulties of the health law for the very people it’s intended to serve.
The law provides tax credits to help people pay premiums for private insurance. Nationally, that aid is averaging around $290 a month, roughly three-fourths of the typical premium. By funneling financial assistance through the income tax system, Democrats were able to call the overhaul the largest middle-class tax cut for health care in history. But they also spliced together two really complicated areas for consumers: health insurance and taxes. Confusion has been the result for many.
Consumers can receive the tax credits in advance if they qualify. But when they file taxes the following year, they must account for the subsidies on their tax returns. People who fail to do that cannot get subsidies paid to them in advance the following year. Without financial assistance, health insurance premiums are unaffordable for many low- and moderate-income people.
IRS said the more than 1.4 million households that have failed to properly account for their 2014 tax credits include:
—About 316,000 households that got tax credits paid to them in advance but did not file any return at all last year. Before the health care law, many low-income people were not required to file taxes. Now they must do so if they got a subsidy. But if taxpayers don’t realize it, that can create mix-ups.
—Some 976,000 households that got tax credits and filed 2014 returns, but omitted a new form that is the key to accounting for their subsidies. Called Form 8962, it was introduced for the 2015 tax filing season.
—About 147,000 households that had requested extensions to file their 2014 taxes, but never followed through.
The consumers with tax issues represent about 30 percent of the 4.6 million households that had tax credits provided on their behalf.
“We expect that taxpayers will continue to better understand this process as it becomes routine,” IRS Commissioner John Koskinen said Friday in a letter to Congress. “We are committed to learning from this experience so that we can improve our processes and enhance the support we provide in the future.”
Friday night, a Treasury spokeswoman said that for this year, the IRS will only flag people who do not file a return at all to have their tax credits turned off. Nonetheless, the spokeswoman said it is important for all individuals to file the proper tax paperwork.
Starting early last summer, the IRS launched a large-scale effort to reach taxpayers who had potential health law issues. Results have been mixed.
Under the health law, virtually all Americans are required to carry insurance and the uninsured face fines if they can afford coverage. Treasury said that compliance was simple for about three-fourths of taxpayers: All they had to do was check a box.
But nearly 8 million uninsured individuals and families paid penalties averaging about $210 each. Of those about 313,000 were low-income people legally exempt from the coverage requirement. They will be able to get their money refunded by filing an amended return.
The Obama administration said this week that 11.3 million people have enrolled for 2016 coverage with three weeks still left in the health law’s sign-up season. But a major independent survey showed that progress reducing the number of uninsured Americans under the law stalled last year, so every customer counts this time around.
Administration officials do not believe tax problems will have a major impact on this year’s enrollment.
“The IRS numbers do not translate to current marketplace consumers,” said Lori Lodes, communications director for the Centers for Medicare and Medicaid Services, which runs HealthCare.gov.