Tax season is always a challenge. This year, things are ramped up a bit, thanks to 2015 being the first tax-filing season where we have to deal with Obamacare on our returns.
Some taxpayers could, in fact, find themselves owing an unexpected tax bill or getting a smaller refund because of the Affordable Care Act advance premium credit. And some of those folks could even face penalties in connection with the subsidies used to help them pay for their health insurance coverage.
The Internal Revenue Service, however, is giving those folks a break. It is waiving some possible penalty charges.
Subsidy calculation complications
Folks who got the premium tax credit when they purchased health insurance from health care exchanges will have the most work to do this filing season.
That subsidy, a provision of the Affordable Care Act, or ACA, made it possible for them to buy coverage. But if they didn’t accurately estimate their income when the advance tax credit was calculated, they’ll have to pay back any excess tax break they received.
As noted in my Bankrate story about this potential advance premium glitch, filers could be in this situation if their personal circumstances that affect the credit amount changed last year and the changes weren’t reported to the marketplace so that the subsidy could be adjusted.
That’s just one part of the bad news. Many of these folks could be in a jam in coming up with what they owe by April 15, especially if it’s an unexpectedly large amount.
Some taxpayers might, in fact, find that they can’t pay their new, higher tax bills on time. Missing the filing deadline typically means a bigger bill in the form of penalties and interest on the unpaid amount.
And where taxpayers owe a lot due to improperly calculated advance premium credit payments, those filers also could face penalties for failing to pay estimated tax.
Asking for penalty relief
However, given that we’re all coping with the ACA effects on our taxes for the first time this year, the Internal Revenue Service is cutting advance premium credit filers some slack.
The agency is waiving premium tax credit late-payment and estimated tax payment penalties.
To get the penalty relief, you must ask.
When you get a notice from the IRS regarding your late-payment penalty, the IRS says to submit a letter to the address listed in the notice and include the statement “I am eligible for the relief granted under Notice 2015-9 because I received excess advance payment of the premium tax credit.”
As long as you file your 2014 tax return by April 15, even if you can’t pay your full tax bill then, you will be granted the penalty relief. Interest, however, will continue to accrue. So make arrangements to pay what you owe as quickly as you can.
If you file your tax return after the April deadline, you must pay your tax bill in full by April 15, 2016, to be eligible for the penalty relief.
Similarly, if your tax bill indicates you’ll likely owe a penalty for not making any or enough estimated tax payment, you need to alert the IRS of the ACA issue. The estimated tax underpayment penalty typically kicks in when a tax bill is $1,000 or more.
Request a waiver of the estimated tax underpayment penalty by filing Form 2210. The IRS says to complete page 1 of the form, check box A in Part II and include the form with your tax return, along with the statement “Received excess advance payment of the premium tax credit.”
Sorry about the extra tax work, but it’s worth the effort to at least avoid the penalty charges.
Premium tax credit only
And one final ACA tax issue note. This penalty relief is only for folks who run into tax bill troubles because of the advance premium tax credit.
The IRS penalty relief does not apply to any bumped up tax bills because folks decided not to buy health insurance at all.
If that’s your case, you’ll still have to figure your shared responsibility payment and pay any added tax. But don’t freak out.
Under the ACA, these underpayments are not subject to either the failure to pay or underpaid estimated tax penalties.
More tax info from Bankrate
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Veteran contributing editor Kay Bell is the author of the book “The Truth About Paying Fewer Taxes” and co-author of the e-book “Future Millionaires’ Guidebook.”