credits in advance to help pay health insurance

Many Americans will get federal tax forms in the coming weeks, and those who declined to buy health care coverage last year face increased penalties under the Affordable Care Act. The IRS is also keeping a precise accounting of those who received tax credits in advance to help pay health insurance costs in 2015. Some consumers will have to pay back some of those tax credits if they earned more money than originally projected.

This all may take some taxpayers by surprise. This is the first year the Affordable Care Act is fully in play on federal tax returns, said William Gerhardt, a San Antonio tax consultant at accounting and business advisory firm Padgett Stratemann and Co.

"The average person will probably start taking notice this year and next year. … So it's going to be a progressive enlightenment for people," said Gerhardt, who is also a tax attorney.

The Affordable Care Act requires all Americans to get health insurance or to pay a penalty known as the individual shared responsibility payment when they file federal income tax returns in April.

Taxpayers who were uninsured for all or part of 2015 and don't qualify for an exemption will pay steeper fines this year than previously. For someone uninsured the entire year, those penalties will increase to 2 percent of his or her annual household income, or $325 per adult and $162.50 per child - whichever amount is greater.

There are limits on what they'll pay. For those paying 2 percent of their annual household income, the maximum penalty will be $2,484 for one person or $12,240 for a family of five or more members, according to the IRS' website.

A single person who was uninsured throughout 2015 and earned $120,000 would owe the IRS a penalty of $2,194 this tax season, according to the IRS' individual shared responsibility provision payment estimator, at 

Taxpayers whose penalties are calculated at $325 per adult and $162.50 per child face a maximum fine of $975.

Penalties were first imposed last year, although not as severe. Around 7.9 million taxpayers paid a collective $1.6 billion for going without health insurance in 2014, IRS Commissioner John Koskinen reported in a Jan. 8 letter to members of Congress. The average payment was $210, he said.

The IRS previously relied on taxpayers to report if they had health insurance. Taxpayers simply checked a box on their tax returns to indicate if they had coverage. This year, the IRS will have more evidence indicating whether people complied with the mandate.

In the next few weeks, health insurance companies and employers with 50 or more full-time workers will send new federal tax forms to consumers and the IRS showing who they insured and whether that coverage was active for the entire year.

Insurers and government programs like Medicare and Medicaid will be sending tax forms known as 1095-Bs, while large employers will send tax forms known as 1095-Cs. Those documents should arrive by March 31, but taxpayers don't need to wait to file their tax returns.

"Most people who are on an employer plan or a self-insured plan can go ahead and just file their tax return if they didn't go through the marketplace," said Christopher Davis, an accountant at Sol Schwartz and Associates, P.C., a San Antonio firm that provides tax and financial services.

Consumers who purchased coverage through the federally operated exchange, however, should wait to receive separate tax forms known as 1095-As before completing their returns. Those forms, which should arrive in exchange customers' mailboxes by early February, will show if their coverage remained active for the entire year and will disclose the amounts of any tax credits they received to help pay their health insurance premiums. Copies also go to the IRS.

If an exchange customer earned more money than expected last year, he or she will have to repay the IRS if they received any advanced premium tax credits to help cover the cost of their coverage. If that person took home less money than anticipated, he or she might receive a greater tax credit toward this year's coverage costs than the amount originally awarded.

Taxpayers who received advanced premium tax credits to buy health insurance through the federal exchange are required to submit Form 8962 with their tax return to the IRS showing their actual household income for the year, how much of a tax credit they received and how much their enrollment premiums were.

Having to pay back tax credits "made a couple clients of ours very, very angry," said accountant Vicki Ravenburg, a partner in the San Antonio accounting firm Sagebiel, Ravenburg and Schuh, PC. Some clients had no idea they would owe the IRS money.

Most people don't accurately predict how much income they'll earn in a year, according to Koskinen's letter to members of Congress earlier this month. Only 8 percent of the 3.5 million taxpayers who filed Form 8962 with the IRS last year - around 300,000 people - accurately predicted their annual household income and did not need to adjust their tax credits, Koskinen's letter said.

More than half of them - about 1.8 million people - received too many tax credits for their health insurance in 2014 and had to repay about $1.5 billion, Koskinen wrote. The average amount repaid was $860, he noted. Roughly 41 percent - about 1.4 million people - received tax credits that were too low and were later awarded greater credits. On average, they received an additional $640.

Taxpayers who declined to get health coverage for all or part of 2015 will have to pay the required penalties when they submit their tax returns this year. However, they might avoid the fines if they qualify for an exemption. Around 12.4 million taxpayers claimed at least one health coverage exemption last year, the IRS reported.

"Short gap" exemptions are granted to people who experienced a lapse in coverage that lasted no longer than three consecutive months. This exemption can only be claimed once during the course of a year. A taxpayer reporting two interruptions in coverage during 2015 will be penalized for the second lapse even if it lasted less than three months.

There also is an exemption for taxpayers in states like Texas that did not expand Medicaid eligibility requirements if they would have qualified for that federal assistance had the program been expanded. This exemption can be claimed by Texans earning less than 138 percent of the federal poverty level.

Exemptions also are available to Americans living abroad and to taxpayers who report the cheapest health insurance plan available to them would have cost more than 8.05 percent of their annual household income.

Taxpayers who experienced specific hardships in 2015 also may claim an exemption. This is available to people who experienced homelessness, eviction, domestic violence, the death of a family member, a natural disaster, a bankruptcy filing, substantial medical debt that couldn't be paid or an unexpected rise in expenses to care for a family member who was sick, disabled or elderly.

Around 313,000 low-income taxpayers unnecessarily paid the penalties last year when they should have claimed an exemption, Koskinen's letter said. The IRS has notified them by mail of their mistake.

Those taxpayers still have time to correct their tax returns and recoup their money.

Taxpayers who don't have the money to pay the penalties or to pay back part or all of any tax credits received should still file their tax returns by the April 15 deadline, accountants said.

"There's two separate penalties - there's failure to pay and a failure to file. And the failure to file is much, much higher than the failure to pay," Ravenburg said, adding that she tells people if they can't pay to send the return or file an extension as that gets them out of failure-to-file penalty.

Taxpayers unable to pay what they owe can make partial payments when they file their tax returns by April 18. (This year's tax deadline is April 18 because of the celebration of Emancipation Day in the District of Columbia.)

They also have the option of seeking an extension that will give them another six months to file their tax returns, but they will still incur late penalties and interest payments if they don't pay by the April 18 deadline. Or they can attach an installment agreement request to their tax returns seeking to pay down their debt with interest and penalties over a period of months.