More than a million Californians benefitted from federally subsidized health insurance in 2014 through the nation's health care law. But now the law is about to give many of them a migraine.
It's tax season, and for the first time Obamacare is showing up on tax forms. And it's leading to confusion and angst over new rules and their impact on taxpayers' pocketbooks.
That's because taxpayers must now reconcile the subsidy they received with the income they estimated they would earn last year. In addition, people who ignored the Affordable Care Act's requirement to obtain health insurance in 2014 now face a financial penalty levied by the Internal Revenue Service — unless they qualify for an exemption.
"We think people may be kind of surprised about that when they do their taxes," said Jackie Perlman, principal tax research analyst at the H&R Block Tax Institute in Kansas City, Missouri. "It's not that people don't know there's an (Obamacare) connection to their taxes. They're just not sure what it is."
Katherine Ramirez, 29, of Hayward, is already wondering how much of a hit she and her husband will take. She said they usually get about $3,000 back from Uncle Sam at tax time — something they could count on to pay off credit card bills.
Ramirez, who manages Natasha's Attic costume store in San Jose, and her husband, a motorcycle mechanic and warehouse worker, qualified last year for a subsidy on the Covered California insurance exchange that reduced their monthly $680 Blue Shield premium to $550.
But when she recently mapped out their income taxes, she realized they had done better financially in 2014 than she estimated when they signed up for the policy last April.
"I'm worried," said Ramirez, who is on crutches after fracturing her left tibia during a family flag-football game over the holidays. So any reduction in their refund, she said, "is going to hurt."
"I gave them what I thought was the correct estimate, and now it may be a little bit more," she said with a sigh. "I could have used the refund to pay for my medical expenses."
H&R Block, the giant tax-preparation company, estimates that as many as half of the 6.8 million Americans who received health insurance subsidies in 2014 will have to reimburse the U.S. Treasury because they underestimated their income. But millions of others will get fatter refunds because they overestimated their income.
Perlman said a number of factors could have altered someone's estimated income or tax status in 2014, including unexpected bonuses at work, getting married or divorced, or having a baby. Anyone who had a dramatic change in their incomes was supposed to contact their insurance exchange so it could correct the subsidy sooner, Perlman said.
Some who benefitted from Obamacare, however, say they expect few surprises.
"I figure it will be close to a wash — a little bit above or below," said Oakland resident Jim Kuhn, 62, a retired credit manager who lives on a fixed income from savings.
As a result, he knew what his income would be when he signed up for a Kaiser plan in the fall of 2013.
"I'm not terribly worried," Kuhn said.
Tax preparers say much of the confusion hasn't hit yet because the key federal form related to Obamacare subsidies is just now being mailed by Covered California.
"No one knows what the questions are because they haven't received the form yet," said Kelley Jensen, a certified public accountant and insurance agent in San Jose. "But when they do arrive, I expect an avalanche of questions."
The good news for most U.S. tax filers, however, is that they won't have to fill out any new forms because of Obamacare. That's because more than 80 percent of them get their health insurance from their employer or a government health plan such as Medicare. For these people, the only extra work will be checking a box on their tax return indicating they have health coverage.
But then there are those people who didn't buy insurance last year, despite the warnings.
For tax year 2014, the minimum penalty will range from $95 per person, or 1 percent of modified adjusted gross income — whichever is more. In 2015, the penalty jumps to $325 or 2 percent of income.
Tone Jacobsen, 34, a San Jose ballroom dancing instructor who missed last year's deadline to sign up for a health care plan, is resigned to paying the penalty.
Because her income isn't that high, she expects to pay the $95 minimum penalty. But she said she won't make that mistake again and plans to enroll in a Covered California plan by the Feb. 15 deadline.
Added Jacobsen: "I've already got my packet."