The new head of the Internal Revenue Service said in a congressional hearing Wednesday that he’s concerned Americans aren’t aware of a tax credit issue in Obamacare that could cause headaches as early as next year’s tax filing season.
Speaking in a House Ways and Means Committee oversight subcommittee hearing that was largely focused on the IRS targeting Tea Party and conservative groups, IRS Commissioner John Koskinen told lawmakers that taxpayers could face repayments of Obamacare insurance subsidies many just started receiving if their income changes over a given year.
“We do need to make sure that people are reporting their income correctly because…if you underreport your income and therefore say you have a right to a bigger premium [credit] that would be a refund fraud if you’re doing it willingly,” he said.
Since health insurance tax credits from Obamacare go straight to insurance companies, Koskinen said opportunities for fraud are limited. But even if underreporting an income is not considered to be fraud by IRS agents, having the wrong calculation for Obamacare subsidies could cost Obamacare enrollees hundreds of dollars.
“Premium tax credit repayments are going to be another Obamacare crisis for consumers,” said Alyene Senger, a research associate in the Center for Health Policy Studies at The Heritage Foundation.
Americans who buy insurance through Obamacare’s federal and state-run exchanges are eligible to receive a taxpayer-funded subsidy that helps offset their insurance premium costs. While consumers have the option to claim the tax credit when they file their annual taxes, most will choose the advance tax credit to lower their monthly premiums.
And that’s where the problem comes in, Senger said. “The Obamacare subsidies are tied to an enrollee’s monthly income. If a person’s income fluctuates, which happens more frequently than many think, the correct subsidy amount the enrollee should receive will change from month to month.”
Any discrepancy in what Americans receive shows up in their tax filings, when they reconcile the two figures. While repayments are capped for lower-income individuals, those making more than 400 percent of the federal poverty threshold would be forced to repay all of an incorrectly calculated Obamacare subsidy that was too generous.
“If you look at a recent Health Affairs study on this issue, the authors found that the median Obamacare repayment—if no income changes were reported and no adjustments were made— would be $857 for one year,” Senger noted.
This story was produced by The Foundry’s news team. Nothing here should be construed as necessarily reflecting the views of The Heritage Foundation.