Two major taxes created by the Affordable Care Act raised $27 billion in 2015.
Those taxes, the 0.9% Medicare surtax and the 3.8% net investment tax, accounted for 1.85% of the $1.45 trillion in individual income tax that the Internal Revenue Service collected in 2015, according to the latest IRS Statistics of Income Bulletin.
The IRS has already released some Affordable Care Act premium tax credit subsidy program data for 2015, but the new bulletin gives data for the major ACA taxes as well as for the subsidy program, and it shows the ACA items alongside other individual income tax return data.
Premium Tax Credit Subsidy
Former President Barack Obama signed the Patient Protection and Affordable Care Act of 2010, the main part of the Affordable Care Act package, into law March 23, 2010.
The Affordable Care Act public exchange system started to come to life in October 2013, with the first coverage sold taking effect Jan. 1, 2014, and the first premium tax credit subsidies flowing to the exchange plan issuers in 2014.
About 5.7 million of the people who filed individual income tax returns for 2015 reported using the advance premium tax credit subsidy in 2015.
Those taxpayers received an average of $3,514 in aid each, down from an average subsidy amount of $3,572 in 2014.
Total advance premium tax credit payments increased to $20 billion, from $12 billion in 2014.
The “individual shared responsibility” provision in the Affordable Care Act requires many people to have what the government classifies as solid heath coverage for most of the year or pay a penalty.
The drafters of the law designed the size of the penalty to increase each year for the first few years, while people were getting used to the penalty system.
Only 6.6 million taxpayers admitted to owing the penalty for 2015. That was down from 8 million who reported owing the penalty for 2014.
Because of the increase in the penalty rate, the average penalty owed increased to $457 per penalty payer, up from an average of $206 for 2014.
Affordable Care Act Taxes
One major health law tax, the additional Medicare tax, affects wages and self-employment income. To calculate the tax, a single taxpayer multiplies 0.9% times any affected income over a $200,000 threshold. A couple multiplies 0.9% times affected income over a $250,000 threshold.
That tax took effect in 2013.
A second major health law tax, the 3.8% net investment income tax, affects net investment income for taxpayers with high modified adjusted gross income. The MAGI threshold is $200,000 for individuals and $250,000 for couples. The tax applies either to the taxpayer’s net investment income or to the difference between the MAGI threshold and the taxpayer’s modified adjusted gross income, whichever is less.
Like the additional Medicare tax, the net investment income tax took effect in 2013.
(Image: Centers for Medicare and Medicaid Services)
The IRS says 3.6 million taxpayers owed the additional Medicare tax in 2015, and 3.8 million owed the net investment income tax.
Taxpayers who owed the additional Medicare tax owed an average of $2,413, down from an average of $2,434 in 2014.
Taxpayers who owed the net investment income tax owed an average of $4,806, down from an average of $4,938 in 2014.
High-Income Premium Tax Credit Subsidy Users
The IRS breaks the items in the 2015 tax return data down by income level.
In theory, high-income users of the Affordable Care Act premium tax credit user should be very rare, because the tax credit is supposed to serve only taxpayers who earn less than four times the federal poverty level, or $98,400 per year for a family of four in most of the United States.
In reality, consumers who use the advance premium tax credit to pay for health coverage while the tax year is still underway must predict what their income for the coming year will be when they apply for the tax credit.
Some taxpayers may lie about what they will earn, and some may end up earning much more than they think they will.
The IRS found 15,001 taxpayers who used the advance premium tax credit in 2015 and ended up earning more than $200,000 in 2015. Most premium tax credit users who earn more than they expect during a tax year are supposed to pay at least part of the subsidy help they get back to the IRS when they file their income taxes. Subsidy users who end up earning more than $200,000 during tax year would, generally, have to repay all of they subsidy help they received during the tax year.
— Read IRS Struggles to Enforce Employer Health Mandate on ThinkAdvisor.