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How PPACA tax worries hit your clients

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A big tax preparation firm says the Patient Protection and Affordable Care Act (PPACA) premium tax credit program ended up causing its customers a moderate amount of financial pain this tax season.

H&R Block Inc. (NYSE:HRB) has published figures supporting that conclusion in an analysis of the returns it filed for customers who used the PPACA exchange plan advance premium tax credit subsidy in 2014.

Drafters of PPACA created the tax credit to help exchange plan users with incomes under 400 percent of the federal poverty level pay for exchange plan coverage. Consumers can choose between getting the tax credit after the end of the tax year, when they file their income taxes, or using income projections to get the tax credit in advance, to pay for health insurance premiums while the tax year is still under way.

More than three-quarters of exchange plan users have been using the premium tax credits to pay for coverage, and more than 80 percent of the tax credit users have been getting it through the advance premium tax credit (APTC) mechanism. 

H&R Block found that 42 percent of its APTC-using customers underestimated their income and ended up having to pay extra money to the government. In effect, those miscalculations cost those customers $729 in reconciliation payments per return. But most of those customers were expecting to get big income tax refunds. The miscalculations reduced the customers’ refunds an average of 33 percent, rather than forcing them to pay cash out of their own pockets.

See also: PPACA premium tax credits: CCIIO sets 2016 procedures

The customers who overestimated their income ended up getting an average of $425 back from the government. That increased their refund by an average of about 18 percent.

H&R Block also looked at the penalties that people who failed to own minimum essential coverage (MEC) throughout 2014 ended up paying.

The average “individual shared responsibility” penalty payment rose to $178 by the end of the season, up from $172 earlier in the season. The penalty cut the affected taxpayers’ refunds by an average of 7 percent.

Consumers who applied for an exemption from the MEC requirement used the exemptions to avoid paying penalties with an average value of about $120.

Earlier, H&R Block noted that filing volume was lighter than it expected. The company did not talk about filing volume in the latest report.