October 8, 2014

More than 5 million people have received subsides to help reduce their health care insurance premiums, thanks to the Affordable Care Act. For many of these individuals, these subsidies have meant the difference between being able to afford health insurance and going without coverage. But this good news has a potential drawback – possible delays for tax filers in 2015.

Under the ACA, individuals who are eligible for subsidies have the option to apply some or all of the credit directly to reduce monthly health insurance premiums for policies originated through the Healthcare.gov and state-administered insurance exchanges. As an alternative, eligible taxpayers may opt to receive the credit as a tax refund. But people who choose to receive their credits as a refund may have to wait even longer than they had planned to receive their cash.

Meet Form 1095-A and Form 8962

The IRS has developed two new forms in conjunction with administering tax credits for policies issued through federal and state health care exchanges: Form 1095-A and Form 8962. Presumably Form 8962 will be available on the IRS website as well as through public libraries and included in online and computer software tax filing programs. Form 1095-A is scheduled to be mailed to taxpayers by January 31, 2015.

Form 1095-A provides information taxpayers need to report credits received or due to them through the ACA. In this respect, Form 1095-A functions much like Form W-2 for wage earners or Form 1099 for independent contractors, unemployed workers and others who receive non-wage income. Form 8962 functions much like Schedule A or Schedule C and must be attached to Form 1040, Form 1040A or Form 1040NR. As of September 2014, both Form 1095-A and Form 8962 are still in draft mode.

Will There Be Delays in Processing Tax Returns?

After the government shutdown in 2013, the IRS delayed processing tax returns for the 2013 tax year for several weeks. This delay had the knock-on effect of delaying the processing of tax refunds. Further complicating the process is that open enrollment for health insurance policies scheduled to take effect during 2015 will also be underway through the Healthcare.gov and state exchanges during the same period.

These factors alone could result in delays in processing tax refunds. If the final versions of either Form 1095-A, Form 8962 are not ready by the end of 2014, it is almost certain that the IRS will once again delay the processing of federal income tax returns. A delay in processing tax returns equals a delay in issuing income tax refunds, at least for taxpayers who file their federal returns early.

Will Refund Anticipation Loans Fill the Gap?

Many people who file their tax returns early expect to receive tax refunds that are often sizable. As of April 2014, the average tax refund totaled more than $2,800. It is reasonable to believe that the average refund for the 2014 tax year could top that figure. Many low-income taxpayers are entitled to health insurance subsides equaling thousands of dollars.

Delays in processing tax returns due to delays in issuing the final versions of Form 1095-A and Form 8962 could have serious consequences for such taxpayers, who often count on tax refunds to fill substantial holes in their budgets.

For taxpayers struggling with limited resources, waiting weeks for federal income tax refund checks can cause serious hardship.

In the late 1980s and early 1990s, tax anticipation loans became wildly popular among such taxpayers. These high interest loans allowed primarily low-income taxpayers to receive at least some cash from their federal and state income tax refunds without waiting weeks for the processing of paper forms. (Responsible Lending)

Online filing for federal and state income tax returns and direct deposit for tax refunds greatly sped up the process – cutting the average wait time from six weeks or more to two weeks or less. As a result, refund anticipation loans waned in popularity. But if the IRS delays processing returns and issuing refunds for the 2015 tax season, such loans may very wall see resurgence.

Hoping for the Best

For its part, the IRS has not announced delays for issuing the final versions of either Form 1095-A or Form 8962. Also, since this is the second time around for the open enrollment season for the Healthcare.gov website, it is reasonable to assume that the process will go much more smoothly than the disastrous first few months. But taxpayers who are hoping to receive a refund next year might need to brace themselves for a potentially bumpy upcoming tax season.