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Most Americans are well aware that if they don't have health insurance they'll be subject to a tax penalty under the Affordable Care Act. What many don't know is that if they've enrolled in an Obamacare exchange plan with a government subsidy, they could also find themselves on the hook to Uncle Sam next spring.
"It's not a subsidy; it's an advanced tax credit. It's actually based on a previous year's income," explained William Cobb, chief executive of H&R Block, the nation's largest tax-preparation service.
So if your income changes this year, he said, the amount of your tax credit could be impacted.
"When the year is finished and you're filing your taxes, that's when the reconciliation occurs against your actual income," Cobb said. "If you made more money, you're going to owe money back against your tax credit."
Already, more than a million people who enrolled in ACA exchange plans this year have seen their applications flagged by the Obama administration. That's due to inconsistencies between their previous income on IRS records and their estimated income for 2014.
Health department officials say part of the problem is that the income reconciliation process is brand new. Yet, that's what worries tax specialists.
"Jackson Hewitt is concerned about delays reconciling premium assistance tax credits and the impact that could have on refund distribution, " said George Brandes, director of health-care programs at the nation's second largest tax-preparation firm.
Brandes expects the process will complicate returns for millions of Americans, when they file their 2014 returns, especially for the self-employed and others with variable incomes.
"What we're telling our clients is if you think that your income may be different from what you estimated," Brandes said, "you should definitely report it because that can help you avoid surprises when tax time comes around."
Americans who bought plans on the Obamacare exchanges are entitled to premium assistance tax credits on a sliding scale, if they earn up to 400 percent of the federal poverty level. For 2014, the income limit tops out at $45,960 for an individual, and $94,200 for a family of four.
In a report published in Health Affairs, researchers at UC Berkeley and UCLA calculated that in California, three out of four subsidy recipients will likely see their income change more than 10 percent year-over-year, and that will result in about a third having to make repayments. According to the researchers, for about one in 10, it could amount to a full repayment because their higher incomes will put them above the 400 percent poverty level.
"A lot of low income people piece together two to three part-time jobs," said Tricia Brooks, senior fellow at the Georgetown University Health Policy Institute. "I think that's where it becomes particularly more challenging to calculate your income accurately. For the self-employed... it is particularly challenging to think about that."
Brooks said the Obama administration and state exchanges have to do a better job of educating enrollees about the financial implications of taking the advanced tax credits.
The complexity of the tax code virtually insures there will be mistakes in ACA credits, said Douglas Holtz-Eakin, president of American Action Forum. Treasury data shows the earned income tax credit (EITC) for low-income families has resulted in a 20 percent payment error rate during the last 10 years.
"Like the ACA premium credits, the EITC is a means-tested, refundable tax credit, and is the largest refundable tax credit in the tax code at the moment," he said during a congressional hearing on ACA taxes. "An error rate of 21 percent, the minimum rate estimated by Treasury over 10 years of EITC payments, would result in $152 billion in erroneous ACA premium credit payments. "
Brandes of Jackson Hewitt said if you're taking the advanced premium tax credit and your income is higher than you anticipated, because of a bonus or a raise, you shouldn't wait until you file your 2014 tax return. You can save yourself a big a bill later by reporting the change now and paying back what you've already collected.
"As hard as it might be, it might be less painful than having a significant payment liability, when tax time comes around," he said.
How much you'll have to repay depends on your income. For those earning below the 400 percent of poverty limit, maximum repayment requirements range from $300 to $1,250. Those with income gains that put over the 400 percent limit will have to repay the full amount of the tax credit.
If your income is lower this year, because of job loss or a pay cut, you could be eligible for a higher subsidy. If you have variable income, tax specialists say you can reduce your risk of having to repay premium assistance by taking only a partial credit in advance. If you wind up earning less, you will still receive the full amount of your eligible credit when you file your return.
Also bear in mind that life changes, such as getting married, or having a child can also affect your eligibility for premium tax assistance. If you've enrolled in an exchange plan, health department officials say you should report changes to your state health insurance exchange online or by phone.
You can get more information on what kind of changes should be reported on Healthcare.gov here:(How do I report life changes to the Marketplace?)
—By Bertha Coombs. Follow her on Twitter: @coombscnbc