Because the Affordable Care Act (ACA) relies on tax credits to help millions of lower-income people purchase private insurance, many have had to contend with a complex and frustrating filing process over the last two tax seasons. As a volunteer providing free tax preparation assistance, I see firsthand that handling the ACA on the tax return can be thorny and challenging. While I strongly believe in providing health care for all, I also believe that we need to do so in a manner that doesn’t create the level of complexity and unpleasant surprises seen with the ACA — particularly for the group least able to handle them. The process must be simplified for the people the ACA is intended to assist.

When it comes to filing taxes, it’s fair to say that I’ve been around the block a time or two. In addition to countless business tax returns at work, I’ve also prepared about 750 individual tax returns in my 14 years as a volunteer for a national program that prepares returns for lower-income and elderly people at no cost. It’s a great service that works out of a local public library, and I’ve met many wonderful volunteers and clients. Apart from the occasional quirky situation (sorry, no, you can’t deduct veterinarian bills), it used to be a pretty straightforward process for volunteers with an aptitude for this kind of thing. That’s changed in the last two years because of the ACA.

Filers now need to document whether they have insurance coverage. If they’ve been receiving premium assistance, they need to figure out if they’ve been getting the right amount and report any premium over- or underpayment — which can result in a refund or a requirement for repayment.

The volume and complexity of the documentation that supports proper reporting is daunting, as is the attempt to summarize and present that information for a training program. Consider, for example, that the entire instruction booklet for the Form 1040 long form is 105 pages. The instructions for ACA-related tax reporting alone total 108 pages (including instructions for forms 8962 on the Premium Tax Credit, 8965 on Health Coverage Exemptions, and the companion Premium Tax Credit publication). Wow.

Perhaps you’re one of the lucky people who can just check a box that says you had health coverage all year. For you, the tax reporting puzzle is a nonissue. But many of the people least likely to be able to check that box are also the ones least likely to be able to navigate complex income tax instructions and reporting, and they are the least likely to be able to afford to hire someone to prepare their taxes. From a tax reporting perspective at least, the ACA has made their lives harder. They’re the people who tend to live on meager incomes, and who may have had their Covered California coverage dropped or changed during the year as their income fluctuated unpredictably, churning them in and out of Medi-Cal.

It’s a “Tax Family” Affair

And while the concept behind who receives assistance is great in theory — treat people living together and reported on the same tax return as a tax household, subject to shared income limits that determine the amount of tax assistance — the reality is actually far less straightforward. Tax families and their income levels often are not static through the year, and that raises challenges at tax time.

For one thing, families who have coverage through the ACA need to understand who is actually in their tax family; they must know to bring all of their dependents’ tax information when they come to our site — including information for any children working to help support the family, and for parents that the tax filers may be supporting. If we don’t have all the information, we can’t help them.

There are families with midyear changes to their income or tax household who are unaware that reporting those changes immediately to Covered California is essential. A single mom with a 20-something daughter, who has always been her tax dependent but now has a full-time job, can suddenly find herself with a Covered California policy and premium assistance covering both of them — even though she can no longer claim the daughter on her return. Due to the resulting complexity, our program doesn’t allow handling of such “split policies” (Covered California policies covering people not in the same tax household.) So we end up with a client we can’t assist. Not only do both mother and daughter potentially have to obtain the services of a paid tax provider, it’s likely that the mother will owe a significant repayment of a portion of the advanced premium tax credit.

A bill for even a few hundred dollars can be a tremendous hardship to many of our clients, and these situations can be hard on the volunteers too. Many of our clients come back year after year, and we’ve gotten to know them personally, so everyone ends up distressed.

During the recent filing season, I observed another troubling phenomenon: an unexpected need to repay in full all advanced premium tax credits received for the year. Under the ACA, premium assistance is offered on a sliding scale for incomes between 100% and 400% of the federal poverty level, but the assistance terminates abruptly once the 400% threshold is crossed by any amount. For two clients who had unpredictable incomes and work situations during the year, tripping over the 400% limit by just a small amount resulted in owing back thousands of dollars to the IRS. The cutoff does not appear to have been well explained to these clients starting the year with estimated incomes on the brink of the limit.

Surprise Bills for Back Taxes

The clientele we serve generally does not have the resources to pay a large, unexpected bill, and it can leave them with a debt that takes a long time to repay. One family of four learned of the eligibility cutoff in April 2015 as they worked on their taxes for calendar year 2014. When they came to see me this year, they were still paying off the related $6,500 tax bill for 2014. They ended up owing several thousand dollars more for advanced credits received in the first quarter of 2015 before they knew to report their change in situation.

Other people I served had similar experiences. There was the older woman recovering financially from a late-in-life divorce and trying to live off of an annuity. She found herself in the circular math of trying to draw enough money to live on without crossing the income threshold that would end her premium assistance. Unfortunately, because of bad advice she crossed the threshold, lost her premium assistance, and ended up with a large tax bill. That in turn required her to draw more from her annuity — thus raising her income again for the new tax year. A maddening experience.

The people struggling most with this element of the ACA tend to have less education, lower incomes that leave them a smaller margin for error, and a lower capacity for the complications and ultimate expense that can arise. Their problem needs to be addressed.

The brokers, insurance agents, and enrollment assisters who help people sign up for Covered California, as well as Covered California itself, need to do more on this front. They need to provide clear and accurate education about the definition of a tax family for ACA purposes, income limits, the impact of those limits and the need to immediately report changes to a tax household’s situation — and in language that people can understand.

If the ACA is going to succeed long-term, we can’t have consumers deciding that the penalty for being uninsured is more appealing than navigating the paperwork demands and, for some, the unexpected financial risks of carrying coverage.

We also can’t have experienced volunteers getting frustrated enough to wonder if 14 years of helping is enough.

Colette Clark

Colette Clark was controller at the foundation for several years, managing its financial systems and reporting. Prior to joining CHCF, Colette was controller at the James Irvine Foundation in San Francisco. Prior to that, she held various finance and accounting positions at Basic American Foods and the Chevron Companies. Colette holds a bachelor’s degree in business administration with an accounting emphasis from the University of San Diego, as well as a certificate in nonprofit management from Cal State East Bay. She is a California CPA.