Millions can get Obamacare tax break—many won't bother

People hate paying taxes, but millions of people may end up willingly forking over new Obamacare taxes this year that they easily could avoid paying.

Intuit, the company that sells the popular tax preparation software TurboTax, has said it estimates that 20 million or more of the 40 million people who lacked insurance in 2014 may be exempt from the Obamacare tax penalty for failing to have health insurance.

But the many of those potentially exempt people might not bother to seek such a waiver by citing one of about 30 conditions, according to Intuit.

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"More than 19 out of 20 people who could have the penalty have not applied for an exemption, which means many people may pay more in taxes than they should," the company said Thursday.

The Affordable Care Act, beginning in 2014, required nearly all Americans to have some form of health coverage for most of the year or pay a tax penalty. That coverage can come from job-based insurance, individual health plans purchased both on and off government-run Obamacare exchanges, Medicare and Medicaid.

Rising Penalties

The homepage of Intuit Inc.'s TurboTax website is displayed on a computer monitor in Washington, D.C.
Andrew Harrer | Bloomberg | Getty Images
The homepage of Intuit Inc.'s TurboTax website is displayed on a computer monitor in Washington, D.C.

For 2014, the penalty for failing to get such coverage was the higher of $95 per adult and $47.50 per child, or 1 percent of taxable household income. In 2015, the penalty rises to the higher of $325 per adult and $162.50 per child, or 2 percent of household income. Next year, the penalties jump to $695 for adults, $347.50 for kids, or 2 ½ percent of household incomes.

Intuit on Thursday said the average Obamacare tax penalty for the 2014 filing year will be $301. But that will increase to $588 next year, according to the company, which cited internal data from customers as well as a Congressional Budget Office report for its estimates.

However, there are a slew of exemptions to the tax that are available. They include being a member of a Native American tribe, and "hardships" such as having filed for bankruptcy, been homeless, been a victim of domestic violence, being sent a notice threatening to shut off utilities or having medical expenses that you can't afford to pay off.

But Sacha Adam, ACA product leader for TurboTax, said, "Many of the exemptions exist because of income thresholds" that allow people to avoid the tax. Those exemptions include having income below the amount required to file a tax return, or having an income that is too high to qualify for Medicaid in your state, but too low to qualify for federal subsidies to buy insurance on Obamacare exchanges.

"For those that have hardships, they'll need to indicate which hardships they have and provide supporting documentation to their [Obamacare] marketplace," Adam said.

Intuit said about 55 percent of people who used the company's online TurboTax exemption check turned out to qualify for an exemption.

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But getting most of the people nationally who would qualify for an exemption to actually seek one is likely to be a challenge, because many of them may be unaware that is even an option.

"I think the main issue for Americans here is awareness," said Adam.

The tax issues surrounding Obamacare are adding a new level of complexity this filing season. All filers are being required to disclose this year for the first time whether they had health coverage during the year.

Lack of awareness

People speak with an agent from Sunshine Life and Health Advisors, as they discuss plans available from the Affordable Care Act on Dec. 15, 2014, in Miami.
Getty Images
People speak with an agent from Sunshine Life and Health Advisors, as they discuss plans available from the Affordable Care Act on Dec. 15, 2014, in Miami.

Adam said a survey done by his company found that "almost half [of filers] are unaware they are required to report their health insurance" status.

People who didn't have coverage will have to fill out a form that calculates the penalty they owe the IRS.

And people receiving federal tax credits to help them buy insurance on Obamacare exchanges because they have low or moderate incomes will have to fill out a form detailing how much they received in those subsidies.

Some people will owe money back to the government, while others will be owed money if their incomes changed from when they first were approved for those subsidies.

Adam said that people who did buy insurance through government-run exchanges such as HealthCare.com "actually have a high awareness that taxes and health insurance reporting intersect this year," in contrast to those who lack insurance.

Read MoreHealthCare.gov tops 2014 tally

The Obama administration on Friday released several tools to help people prepare their tax returns in light of the new rules related to Obamacare. Those tool can be found here.

The Health and Human Services Department also said it will be directly contacting people who enrolled in Obamacare plans to offer "personalized information that is more relevant to their tax status."

Tax preparation companies have been highlighting the effects of Obamacare as part of their marketing strategies and services.

TurboTax has touted the fact that its software "includes ACA compliance for no extra charge."

H&R Block CEO Bill Cobb has said it expect about a quarter of its tax preparation customers to file forms related to Obamacare, for which the company will charge an extra fee.

Jackson Hewitt Tax Service has noted it is again partnering with Web-based health insurance broker GetInsured "to offer clients free assistance identifying health-care options."