(CBS NEWS) -- For most lower- and middle-income taxpayers in need of health
insurance, the most significant tax-related aspect of Obamacare starts
this year: calculating subsidies.
After filing his or
her 2012 tax return, an uninsured taxpayer should find out whether they
qualify for a government subsidy, and if so, how large it will be. That
Tax Day development will help them make a key choice this fall: whether
to take that subsidy and buy insurance coverage for 2014, or pay a fine
to the IRS in 2015.
In 2014 alone, the government is expected to spend $25 billion
on subsidies to help people purchase coverage on the state-based health
exchanges -- the online marketplaces where consumers can choose from
various private insurance plans. The exchanges are expected to be ready
for open enrollment by October of this year.
customers to join the exchange -- and thus expanding health care
coverage, the Affordable Care Act's key objective -- requires the
coordination of the Internal Revenue Service, Health and Human Services
and other government agencies. The government is expected to collect more than $1 trillion in tax revenue over 10 years and dole out more than $1 trillion in subsidies.
is a major new venture and like anything, no one can predict exactly
how it's going to work," Paul Van de Water, a senior fellow at the
Center on Budget and Policy Priorities, explained to CBSNews.com. "The
HHS and the IRS and other agencies involved in this are working hard to
implement it, but until the thing actually starts, no one's really going
to know what features need to be modified to make them work better."
of the tax-related elements of the Affordable Care Act don't impact
taxpayers directly -- they instead impact business sectors like the
medical device industry or health insurers. Still, some Americans will
start noticing through their 2012 tax return how Obamacare impacts their
lives. And starting this year, others will be paying extra taxes
because of the law.
for the exchange will be available to individuals with household
incomes between 100 and 400 percent of the Federal poverty level --
taking into account factors like family size.
By 2022, according to the nonpartisan Congressional Budget Office, an estimated 26 million people will get their insurance through state exchanges. Up to this point, however, most people don't understand how the health care law will impact them directly or what their taxes have to do with it.
finding in a survey that 77 percent of respondents were unaware their
2012 tax return could be used to determine their first year of
subsidies, H&R Block started conducting customer outreach
on the subject. When the company's tax preparers sit down with
customers, "a lot of them are relieved and excited to the see the
Affordable Care Act broken down into how it personally affects them,"
Meg Sutton, a senior advisor for tax and healthcare services at H&R
Block, told CBSNews.com.
Open enrollment for the
exchanges is supposed to start in October of this year, with coverage
starting in 2014. If a taxpayer qualifies for a subsidy, he'll enroll in
a private health plan through the exchange, the government will pay the
subsidy directly to the insurer and the taxpayer has to cover the
If a taxpayer takes a subsidy, he's
required by law to report that to the IRS the next year. The IRS will
review it and decide, based on that person's income, whether he received
too much or too little in subsidies. "If you got too much of a subsidy,
consumers will see money coming out of their refund," Sutton explained.
By 2015, paying a new tax?
in 2015 -- one year after the individual mandate goes into effect --
taxpayers will also have to provide the IRS with proof of insurance. If a
taxpayer doesn't have insurance, he'll have to pay a fine of $95. The
next year that fine increases to $325, and it eventually rises to $695
Some people will be exempt because of their low
income, because they are members of Indian tribes or for other reasons.
All told, the CBO estimates
that about six million people will pay a penalty because they are
uninsured in 2016 -- that's accounting for the fact that some people
won't comply with the law.
There's always the chance
that taxpayers won't pay their bills to the IRS -- but if they don't,
they could face fines or even time in jail. The Affordable Care Act,
however, seemingly stripped the IRS of any capability of enforcing the
individual mandate. A specific portion of the law says, "In the case of
any failure by a taxpayer to timely pay any penalty imposed by [the
mandate], such taxpayer shall not be subject to any criminal prosecution
or penalty with respect to such failure."
Van de Water predicts that non-compliance won't be much of an issue.
Most people would rather take a government subsidy and get insurance
rather than owe the IRS.
"With the availability of the
subsidies, lot of people are going to actively want to participate" in
the exchanges, he said. "The notion of starting with a relatively small
penalty also makes sense -- ideally you want to encourage people to
enroll through carrots, rather than beating them over the head with
Changes to expect on your 2013 return
taxpayers won't have any Obamacare-related taxes to pay when they file
their 2012 returns, wealthy Americans have in 2013 started paying new
taxes affiliated with the Affordable Care Act.
two new taxes that went into effect this year because of the health law
-- a new payroll surtax and a tax on investment income.
payroll tax, intended to help finance Medicare, is a surtax of 0.9
percent on wage and salary income over $200,000 for single filers or
$250,000 for joint filers. Typically, payroll taxes are levied on wages
earned by each person individually, rather than on the combined income
of a couple. This new Medicare tax, then, creates "a weird definitional
change, in terms of how people think about taxes," said Nick Kasprak, an
analyst at the nonpartisan Tax Foundation.
tax -- also referred to as a "Medicare" tax, though the law does not
require it to fund Medicare -- is a 3.8 percent surtax on investment
income for taxpayers with a modified adjusted gross income above
$200,000 or couples with an income above $250,000.
These two new taxes are expected to bring in $317.7 billion over 10 years, making them two of the biggest revenue raiser in the Affordable Care Act.
health law makes two other changes to the tax code that middle-class
Americans may notice -- a cap on flexible spending account contributions
and a new threshold for itemized medical expense deductions.
to this year, there was no government limit on the amount of pre-tax
salary that people could divert into flexible spending accounts --
though most employers imposed their own limits. This year, the limit is
Meanwhile, a taxpayer last year could deduct
medical expenses over 7.5 percent of his or her adjusted gross income.
This year, the threshold has been increased to 10 percent.
"For people that have a huge medical bill in a certain year, this is going to be a significant hit," Kasprak said.