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Obamacare may eat your tax refund

After website issues, predictions of double digit rate increases in 2015, and on-going court battles, the latest revelation is that tax refunds may be reduced or eliminated.
After website issues, predictions of double digit rate increases in 2015, and on-going court battles, the latest revelation is that tax refunds may be reduced or eliminated.
Photo by Joe Raedle/Getty Images

There is perhaps nothing more consistent in creating unintended consequences than politics and legislation. This aptitude for unexpected and often unwanted results is only amplified when coupled with partisan (in)action, rushed legislation, and/or a failure of politicians to read legislation before passage. King of these would be the Affordable Care Act (Obamacare).

In the short history of the Affordable Care Act there have been many unforeseen consequences as well as several timely predictions. But it should not be taken as an isolated legislation with negative results once enacted. There was the Obama Stimulus which resulted in an estimated 344,000 Americans losing food stamps. There was the much hyped Cash for Clunkers, meant to help the auto industry in 2009, which ultimately had the effect of an estimated $1 billion in losses.

But Obamcare stands out among the many rushed quick fixes that Government is eager to pass. From the required documentation for small businesses, meant to cut costs, that increased costs to the Healthcare.gov website that currently has cost almost $1 billion and is still yet to be 100% operational. Then there are the predicted health care cost increases for 2015, which may hit double digits in some States. All this and there is still the employer mandate, and loss of unqualified health care plans, still to come.

Yet the thing that may truly catch the ire of some Americans will be the undisclosed impact of Obamacare on tax returns. In what can be described as a punishment for success, Americans that see their incomes increase during 2014 may find that Obamacare will lessen their tax returns. In some cases Americans will owe money to the IRS, because of Obamacare, just because they made more money.

"More than a third of tax credit recipients will owe some money back, and (that) can lead to some pretty hefty repayment liabilities," said George Brandes, vice president for health care programs at Jackson Hewitt Tax Service."

The problem is that of the some 7 million that gained health care insurance via Obamacare most have some amount of tax credit currently provided by the Government to help pay for the plans. Those credits are pegged to income levels. Thus getting a raise, a promotion, or changing jobs for a better paying one, can all cause the credit from the Government to decrease. The net outcome can be a hit to tax refunds or even requiring payment to the IRS for the difference.

Clearly, at no point has any advocate of the Affordable Care Act ever mentioned that getting a raise or better job could take away your IRS refund. No hint has ever been made by the defenders of Obamacare that improving finances of American families could mean that they will owe more in taxes, because they followed the law and got healthcare coverage. Even as the news is being learned, and tax preparers are learning the complicated steps to determine if, and how much, an income change would effect tax returns the public at large remains oblivious to the news.

Considering the negative impact, and lack of public information, it would appear that the loss of tax refunds to the Affodable Care Act was unintended. But in this case that's a hard sell. It was known from the beginning that the tax credit would be tied directly to income. It just wasn't conveyed to the public at any point. Therefore, at some point in the early months of 2015, expect to hear another revelation that this was a known consequence that just wasn't clarified enough as Sen. Kirsten Gillibrand stated about the Doctor Promise in 2013.