Anyone who has bought health insurance on an ObamaCare exchange may be eligible for a refundable tax credit. However, the federal government is already paying out the tax credit based on a guess you made about your household income a year before you’ll file your tax return. If you guessed wrong, you may owe the IRS money. However, you are not receiving the tax credit: Your health insurer is. How will you get the money back from your health insurer when the IRS comes knocking? Don’t ask.
A hypothetical example might help illustrate: a health exchange customer selects an ObamaCare exchange plan. The government estimates that this taxpayer will earn $30,000 this year, which makes her eligible for a $2000 tax credit. This $2000 is paid to the taxpayer’s insurance company to help with premiums.
The next spring, our customer/taxpayer is filling out her tax return. Unfortunately, the government estimated the taxpayer earned too little and paid too large a credit. She actually earned $40,000, and so only had a $1500 credit coming to her.
Depending on the taxpayer’s income level and availability of verified affordable workplace insurance, she will have to pay back much or all of the $500 overage to the IRS. This means skinnier refunds and maybe even liabilities, and it won’t be the taxpayer’s fault — it will be the government’s fault.
(Ryan Ellis, Americans for Tax Reform)