H&R Block reported that six weeks into tax season, a 52 percent majority of taxpayers who enrolled in health insurance coverage through a state or federal marketplace have needed to pay back a portion of the Advance Premium Tax Credit, and the average amount they paid back is $530, decreasing their tax refund on average by 17 percent.

With many clients relying on 2012 income as a baseline to estimate their 2014 income at the time of the first open enrollment, H&R Block anticipated that most filers would not accurately estimate their 2014 household income. This income underreporting has led to a majority of Marketplace-enrolled taxpayers paying back a portion of the tax credit. The average tax refund for these taxpayers was almost $3,100, but it was reduced by $530 due to the tax credit reconciliation process.

“The level of payback of the Advance Premium Tax Credit is significant in that it's costing taxpayers a large percentage of their refund—a refund many of them count on to pay household expenses,” said Mark Ciaramitaro, vice president of H&R Block health care and tax services in a statement.

The analysis found that a majority of year-end Marketplace-enrolled clients who reconciled using Form 8962 underestimated their household income and therefore must repay a portion of the APTC.

Conversely, the analysis also showed that roughly one-third of Marketplace enrollees overestimated their 2014 household income, and therefore received an Additional Premium Tax Credit of close to $365 on average. That represented an additional 11 percent increase, resulting in an average $3,816 refund.

Penalties and Exemptions for Lacking Insurance
The average tax penalty for not having insurance was $172, an indication that most taxpayers are paying more than the flat fee of $95 per uncovered adult penalty that many consumers anticipated.

Of those taxpayers who claimed an exemption, more than nine out of 10 claimed a tax return exemption at the time they filed. The most common tax return exemption was due to the taxpayer’s income being below the filing requirement. The second and third most common exemptions were due to a gap in health insurance coverage or being a resident of a state without Medicaid expansion.

For next tax filing season, Block noted that the base penalty will increase to the greater of $325, or 2 percent of household income for 2015. However, anyone who has not filed a 2014 tax return, and learns they will be penalized for not having insurance during their tax preparation this season, may qualify for a special enrollment period to obtain Marketplace health insurance.

In addition, Block found that taxpayers appear to be accurately indicating their insurance coverage status, as the number of those selecting a penalty and/or qualifying for an exemption seems to be in line with Block’s own preseason projections. Taxpayers appear to be foregoing hunting down Marketplace hardship exemptions and instead claiming tax return exemptions, especially those that are income based.

“Our data suggests that most taxpayers are accurately indicating their household insurance coverage status,” said Ciaramitaro.

He added that clients “appear to be answering truthfully by paying the tax penalty for being uninsured. We don’t think they are just checking the box that they are covered when they’re not.”

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