Vermonters receiving premium subsidies through the state’s health insurance exchange will have an additional form to file with their income tax returns, and the state is preparing to help.
This is the first year that the Affordable Care Act will affect tax returns, and state officials are expecting a good deal of confusion.
Those below the federal income tax filing threshold of about $10,000 for an individual or between $14,000 and $20,000 for a family won’t be affected because they won’t have to file a return.
People above the filing threshold must report that they had health insurance or they will owe a penalty, known as the shared responsibility payment.
“We’ll do everything we can short of giving people tax advice,” Devon Green, special counsel on health care reform, told lawmakers this week.
The state plans to train staff at the Tax Department and the Vermont Health Connect call center to answer questions about the premium tax credits and shared responsibility payment.
Operators will direct people to tax preparation services from Volunteer Income Tax Assistance (VITA) clinics, local agencies and the Health Care Advocate’s Office, a project of Legal Aid, which will allocate some of its low income tax project resources to the advocate’s office. Legal Aid does not assist people with tax preparation.
The state also plans to hold information sessions for tax practitioners across the state so they can help their clients file properly. It had previously held such an event, but the IRS had not finalized the premium tax credit forms, potentially making some of the information already shared obsolete, Green said.
The IRS typically makes tax forms available Jan. 24, but the forms have been delayed in the past and could be again this year, said Grant Peterson, a senior tax consultant for the IRS in Vermont.
VITA, which is supported by grants from the IRS, has its volunteers take a test each year to qualify them to give tax advice, and this year’s test includes questions on the premium tax credits and shared responsibility payment, Peterson said.
Households with incomes of $53,000 or less can qualify for tax help from VITA.
The individual responsibility payment for not having health insurance is 1 percent of household income above the filing threshold or $95 per adult and $47.50 per dependent, capped at $285 for a household, whichever is greater.
There are several exemptions to the shared responsibility payment, including being uninsured for less than three months or qualifying for a hardship exemption.
Vermont Health Connect customers receiving premium subsidies should be prepared for the discount they have received all year to be reconciled with their actual income. That’s true for households with some family members on Medicaid, too, as long as at least one family member has commercial insurance through the exchange.
Subsidy eligibility is calculated from a self-reported estimation of earnings. The subsidy is a tax credit that is being advanced to people monthly.
There are roughly 20,000 Vermonters who purchased health insurance through the exchange and are receiving subsidies, according to figures from the state.
If there is a greater than 10 percent difference between self-reported income and the last tax return filed with the IRS, it triggers a verification process at the state level, according to Lawrence Miller, chief of Health Care Reform.
But a federal report from earlier this year called into question whether Vermont and other states have been effective in verifying people’s self-attested information.
Rep. Martha Heath, D-Westford, expressed concern at a legislative committee meeting that Vermonters who may have tried to submit a change in income or another change, such as adding or subtracting a dependent, that impacts their premium subsidy could end up blindsided by the tax reconciliation if that change was never implemented by Vermont Health Connect.
A backlog of such changes that reached 15,000 at its peak in August is now down to 3,300, though there are thousands more that are not part of the backlog but remain unresolved.
State officials say there is no way to know how many of those changes could have caused, or are continuing to cause, people to pay the wrong premium amount.
Exchange customers receiving a subsidy will be sent an IRS form 1095-A (Health Insurance Marketplace Statement) in the mail in January. They will use that form to fill out form 8962, which will determine whether they correctly estimated their income and whether they should receive money back or pay more.
People with employer-sponsored exchange coverage won’t need to file an 8926. But there are tax implications for small businesses that navigators will be prepared to help employers deal with.
There are income-based limits for how much people who received too much in subsidies will be asked to pay back the federal government.
Those limits are listed in the chart below.