Affordable Care Act’s Tax Effects Now Loom for Filers

If you decided to skip health insurance this year, consider this: Unless you can prove you have a valid excuse, you will be liable for a penalty during the coming tax season — and the time to start making your case is now.

That’s not all. People who bought subsidized insurance through one of the marketplaces may have new tax forms to complete, while paying the penalty itself may demand some serious number-crunching.

The Internal Revenue Service is gearing up to answer questions, but it warns that only half of the callers may get through — and those who succeed may have to wait a half-hour or more.

“There are quite a number of moving parts that taxpayers have not had to deal with,” said Kristin Esposito, technical tax manager for the American Institute of Certified Public Accountants.

The Obama administration’s Affordable Care Act — including its penalty provision — is in effect for the first time this year and will be reconciled through a person’s tax return.

For most taxpayers, this will simply mean checking a box on a tax return indicating they had insurance for the full year. But millions of others will have to grapple with new tax forms and calculations that may generate unexpected results.

For instance, most of the 6.7 million people who bought insurance through the exchanges received subsidies, which reduced their monthly premiums. But those subsidies were based on previous years’ income — so people whose incomes have changed will inevitably have to pay some of that money back, while others may receive fatter refunds.

Paying the penalty may also deliver some surprises. People who were uninsured for more than three consecutive months may owe something. (And since the penalty will double next year, now is the time to determine how much that might cost, before it is too late to buy a health policy through a federal or state-run marketplace for 2015.)

“This is a learning experience for everyone involved,” said Roberton Williams, a senior fellow at the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution. “When you combine that with all of the problems with the exchanges, there will be a lot of confusion and people will be sorting it out. I am sure the I.R.S. will be inundated with calls.”

But be prepared to hit redial. John Koskinen, the Internal Revenue Service commissioner, admitted in a recent speech that because of budget constraints, the agency may be equipped to answer just over half of the phone calls it receives. Many will get a “courtesy disconnect.”

The tax filing season will also serve as yet another big test for the federal government, since it will require several government entities — the state and federal marketplaces and the I.R.S. among them — to share data and send out new tax forms with accurate information in a timely manner.

Here are some of the biggest ways the new law may affect taxpayers:

EXEMPTIONS Consumer advocates said they were concerned that some taxpayers might not realize that they needed to apply for certain exemptions, and, in some cases, substantiate their circumstances. (An estimated 23 million people will qualify for an exemption in 2016, while many others will be granted a pass because of a hardship, according to a federal analysis.)

Some exemptions must be applied for through the exchanges, while others can be claimed only on income tax returns and some can be granted through either channel. (The I.R.S. and Healthcare.gov have lists of where to apply for each). For instance, people who cannot find affordable coverage — costing 8 percent of household income or less — must claim that exemption on their tax returns.

But the most time-consuming exemptions require mailing a signed paper application to the exchanges: These are processed manually, which can take a couple of weeks. Those exemptions include several hardships, such as foreclosure, the death of a family member, unpaid medical bills and eviction, as well as religious reasons for not using insurance. “Do it now because it’s a cumbersome process,” advised Mark Steber, chief tax officer at Jackson Hewitt Tax Service.

Once an exemption is approved (and if it’s not, the applicant can appeal), a taxpayer is sent an “exemption certificate number,” which should be entered on the tax return. “We know in some cases those certificates have not come back yet,” said Cheryl Fish-Parcham, private insurance program director at Families USA, a consumer advocacy group.

TurboTax, the tax-preparation software brand, has a free exemption check tool that can determine if taxpayers qualify and help them apply.

PENALTIES Uninsured people who cannot qualify for an exemption will be required to pay a penalty, also known as the individual shared responsibility payment. Even people who went without insurance for more than three months may have to pay something.

The penalties will rise sharply over the next couple of years, so taxpayers contemplating paying the penalty instead of buying insurance for the coming year should run those calculations soon: Open enrollment on the health care exchanges runs from Nov. 15 to Feb. 15.

For the 2014 tax year, individuals pay whichever is more: $95 or 1 percent of the portion of their modified adjusted gross income that exceeds the federal income tax filing threshold: $10,150, for example, for those with single filing status. But payments are calculated on a monthly basis for each household member.

Those figures are about to double. A family of four earning $100,000 who skipped coverage in the last year would owe just shy of $800 in 2014, but it would need to pay nearly $1,650 in 2015, according to the Tax Policy Center’s calculator, which can determine how much a taxpayer might pay.

There is some question about how aggressive the I.R.S. will be in collecting the penalty in its first year. But in 2016, an estimated four million people will pay penalties, according to a federal analysis.

The agency will not be permitted to resort to its usual collection tactics, such as using levies — like wage garnishment — or liens. It cannot criminally prosecute those who do not comply, either.

But the I.R.S. can deduct the penalty from any refund due. And if a taxpayer isn’t owed a refund — and fails to pay the penalty — the amount will accrue interest and roll over into the following tax years. The I.R.S. could continue to deduct the growing amount from any refunds due for 10 years, which is how long the agency is allowed to collect payments.

RECONCILING People who bought subsidized insurance on the exchanges received what is actually an advance on a tax credit. Since the amount of help taxpayers received was based on 2012 income, it will need to be reconciled against what they actually earned in 2014 — particularly if they earned more or less and did not update their income data on the exchange.

Some people will be surprised that they must pay some of that money back, or at least have it deducted from what they would have received in a refund. Conversely, people who earned less money in 2014 — and who received subsidies that were too small — may receive money back. Changes in life circumstances — a divorce, marriage, a new child — can also affect those numbers.

“This is the part that can be very complex,” said Kathy Pickering, executive director of the Tax Institute at H&R Block. “People think of the tax credit as a discount on their premium. But realizing it can be something you repay a portion of is going to be a surprise.”

Taxpayers may be comforted that there are caps on the amount that must be paid back, though a family of four with a household income exceeding $94,200 would have to pay back the full amount if it received too much in premium subsidies.

But some taxpayers who are on the edge of losing premium subsidies may be able to reduce their incomes enough to qualify for the credits. For instance, people can contribute to a retirement account — like a 401(k), 403(b) or traditional I.R.A. (and I.R.A. contributions for 2014 can be made by April 15 for the 2014 tax year), tax experts said.

“This is the perfect time to look at their income,” Ms. Pickering added, “because they still have time to make a change.”