Thanks to Obamacare, America Will Soon Implode (UPDATED)

For a long time now, I have maintained that there is a very simple solution to the Gordian complexities of our tax code -- it is to pass a law like this:

It shall be unlawful for any person or entity whatsoever to furnish any aid, assistance, or input of any kind to the preparation of any income tax return by any member of Congress, by any staff (who work in the District of Columbia) of any member of Congress, or by anyone who works in the White House. All such persons must prepare their own returns each year on their own, by hand, on original forms obtained from the IRS, and not using any computers, software or other artificial intelligence of any kind. The IRS shall audit every such return so filed every year; provided, that once a person subject to this law has filed a return for three successive years with no errors, the IRS may use its normal discretion as to whether to audit said person's subsequent returns.

And then watch Congress pass bills to simplify the tax code! But until there is such a law, we are doomed to suffer. And in that connection, now we learn that the monstrosity known as Obamacare just keeps on giving off toxic byproducts. The purpose of this post will be to acquaint readers with just a smidgen of its latest injection of toxicity into the lives of middle-class Americans.

A brief recap of how we got here: the legislation known now as "Obamacare" passed Congress in 2010 with nary a Republican vote, thanks to the questionable procedures employed by Harry Reid in the Senate to get it through with less than 60 votes. And as House Speaker Nancy Pelosi infamously remarked, "We had to pass the bill to know what was in it."

The scheme of Obamacare was diabolically simple: mandate that everyone purchase health care coverage, and let the premiums paid by the young and healthy subsidize the cost of coverage for the older and chronically sick. To enforce the mandate, impose a penalty on anyone who does not purchase the minimum mandated coverage. And to sweeten the pot, offer federal subsidies to those of lower income who could not afford even the minimum premiums.

(To keep this exposition uncluttered, I pass over the complexities of the statute that provided subsidies only for those states creating an insurance exchange -- complexities brushed aside by the Obama administration in its rush to get the statutory scheme implemented despite massive incompetence, and which will be addressed by the Supreme Court later this year.)

Now comes the day of reckoning for all those whom the statute has affected: April 15, 2015. Individual tax returns are due on that day, and those who decided to pay the penalty rather than purchase insurance must send it in with their taxes.

Those paying a penalty will have a simple calculation: you can follow this link, plug in the numbers and see how much it is. (Notice also how much it increases in the next few years.)

But the real surprise will hit those who did purchase insurance, and received a subsidy to help cover the cost of their premiums. The law requires them to justify what they received in light of their (and their dependents' ) actual 2014 reported earnings. If they received too much subsidy, they will have to pay it back. If, on the other hand, they did not receive all the subsidy to which they were entitled, they get to deduct that amount from the taxes they otherwise owe, in order to lower the end cost of the insurance.

To calculate what the law calls their "Premium Tax Credit" (PTC), those lucky souls will encounter a brand-new IRS form -- Form 8962. It is two pages long. But that is deceptive, because its instructions are fifteen pages long. And though I will do my level best to explain them for you, I make no claim to correctness in what follows. As you will see, the sheer complexity of getting through a Form 8962 for all of the differently situated taxpayers and their different policies is a monumental challenge even for seasoned professionals (which I am not).

I simply happen to be of the belief that every citizen ought to be able to do his own taxes. And if the day comes when that is no longer possible, then the country's fate will truly be out of its own hands.

The initial difficulty you will have with Form 8962 is in figuring out whether you are required (or eligible) to file it. You may have to struggle with filling it out first before you can answer that question.

First: all those persons filing singly, and eligible married couples filing jointly, who purchased Obamacare and want to claim a PTC against their tax liability for 2014 must file the form -- that much is simple. (If you were not married during part of 2014, or are married filing separately, good luck with following the instructions, and may God help you, because the IRS won't be able to. That still doesn't excuse your not filing the form if you are required to file it.)

Your PTC (as calculated on the Form) will equal (based on your individual and family circumstances -- just wait!), roughly speaking, the amount you paid (or what the Obama administration thinks you should have paid, if that is less) for Obamacare premiums for yourself and your family, minus the amount that the Obama administration deems you were able to pay for those premiums, using the tables provided and following the instructions.

How much you ought to have been able to pay depends in part on how your income compares to the poverty line level for your State. (If you moved from one State to another during 2014, not to worry: unless you moved from or to Alaska or Hawaii, which have their own poverty tables.) If you earned more than four times your State's poverty line for your given size family (that is, for example, $23,550 x 4 = $94,200 for the contiguous U.S. States for a family of four -- see Table 1-1 on page 4 of the instructions), you were not eligible to receive any subsidy, and married or not, you will have to file Form 8962 to pay back any subsidy you are reported as having received.

If you earned less than the poverty line, you still have to file the Form to prove you can keep the subsidy you received. And if you fall between 100% and 399% of the poverty line -- well, take a stiff drink and get out your calculator, because you are one of those middle-class chumps for whom life just got infinitely more difficult, thanks to the intricacies of Obamacare.

Second: if you (or any member of your insured family) received, for any month in 2014, a subsidy toward payment of your Obamacare premiums (and that subsidy is called "Advance Premium Tax Credit", or APTC -- understand?) then you must file Form 8962 to reconcile the amount of APTC you actually received with the PTC that you are entitled to take on your return.

If you purchased your Obamacare policy through an official exchange (which the instructions call a "Marketplace"), then when you enrolled, you told the exchange (Marketplace) certain information about your anticipated 2014 income and family circumstances as part of the enrollment process. Based on what you told them, the Marketplace then quoted to you the premiums for the different levels of plans available from that exchange: for a "Bronze" policy, or a "Silver", "Gold", or "Platinum" policy, and calculated any estimated subsidy, or APTC, to which you would be entitled.

Those premiums they quoted you, and which you subsequently paid, may or may not have reflected a government subsidy, based on your reported income, your family and your other circumstances. The good news is that each Marketplace, or insurer, will have to send you another new form, called "Form 1095-A", which will tell you just how much APTC you received for each month you were insured and paid the premiums under your chosen policy (think of it like a Form 1099 in that regard -- it tells the government that you received some income which otherwise might go unreported).

[UPDATE 02/20/2015: Right on time comes the news that the Government can't even get its own Forms 1095-A right -- the main Website, Healthcare.gov, sent out 800,000 of them to taxpayers who purchased insurance there, but the numbers reported on the Forms were wrong! So all of those taxpayers have been told they will have to wait to get the correct information before they can proceed to figure out their taxes.

Oh, yes -- the same story reports the California insurance exchange site sent out another 100,000 erroneous forms to its customers, too. We don't have any data from the other exchange sites, but you can bet that the same errors crept in for them, as well. Mix garbage in from the consumer or the Website with garbage in from the Government, and what comes out should surprise no one.]

But as we all know now, the enrollment process was severely flawed. So the bad news is that not all of the information you gave to the Marketplace was still correct as of the end of 2014, or was correctly conveyed by the Website to the insurer, or by the insurer back to the insured. As a result, it is anybody's guess at this point whether you will have to pay some subsidy back, or will be entitled to deduct some of it from your taxes. You will have no choice but to try to fill out Form 8962 to find out, because Form 1095-A alone can't tell you what you owe in further taxes, or are owed as a refund. Isn't life under Obamacare marvelous?

Let's try to get a handle on this Form 8962. Take a look at line 1 of the Form: it asks for the size of your family, based on the number of exemptions you claim. So far, so good -- you can take the number directly off line 6d of your Form 1040 or 1040A. (If you're filing Form 1040EZ, something's wrong. People who have to file Form 8962 cannot file a Form 1040EZ. Go back to square one and start again.)

The trouble starts on Line 2. You are told to enter your "modified AGI (see instructions)" on line 2a, and the total of your dependents' modified AGI (see instructions again) on line 2b. "AGI" stands for Adjusted Gross Income, which is a modification to your gross income calculated in a section of your 1040 form. But for Obamacare, they want you to modify that modification still further (thus they call it "MAGI").

The hoary details are on page 4 -- essentially, you have to add back in any foreign earned income, any tax-exempt interest received, and the portion of any Social Security benefits received which were not otherwise taxable. All clear? Did you complete Worksheet 1-1 on page 4 of the instructions?

Good -- because now you have to perform the same add-back calculations for your spouse and each of your dependents who were covered by your Obamacare policy. Good luck on getting your kids to tell you accurately what their AGI for 2014 was, let alone their MAGI.

If you successfully complete line 2, add the amounts to make line 3, the total MAGI for your Form 8962 "coverage family" (which can change from month to month, based on eligibility, and which is not the same as your "tax family" -- see those Instructions, at p. 2). Now you have to enter on line 4 the applicable poverty line number for your State and for the size of your "tax family" from the tables in the instructions. Then divide your total income on line 3 by the poverty line amount on line 4, and convert the decimal answer to a whole number, being careful to follow the special rounding rules for line 5 on page 5 of the instructions.

Now the fun really starts, based on the two- (or three-) digit number you calculated for line 5. Take a look at the instructions for line 6 -- they fill out the rest of page 5 -- and be sure to follow them exactly for your given situation, just so you can answer "Yes" or "No" on that line. If your answer to line 6 is "Yes", you will now generate another percentage amount based on the number you calculated in line 5, by looking up the appropriate percentage in Table 2, which takes up all of page 6 of the instructions, and entering that percentage on line 7. The percentage so found will be somewhere between 2.00% and 9.50%.

Think you're almost done? No way. Now you have to apply the percentage you determined for line 7 to the total income you reported on line 3, and then enter that amount (or its monthly equivalent, divided by 12) into the appropriate boxes in line 8, and also in Column C of Part 2 of Form 8962. This is the portion of your reported total family MAGI which the Obama administration deems you should have been able to pay toward the cost of your insurance (as I said, it will be somewhere between 2% and 9.5% of that MAGI, with the percentage growing as MAGI gets larger than the poverty line figure for your State).

And here the going gets tough, especially if you (like most Americans) had not signed up for Obamacare as of January 2014. Because then you have to calculate your APTC month by month for each of the months in 2014 for which you purchased coverage. See pages 9 through 11 of the instructions for details, and Columns A through F in Part 2 of Form 8962.

And if your marital status changed during 2014, then you have to fill out Tables 3 and 4 and Worksheet 2 on pages 7 and 8 of the instructions in order to know what you have to pay, or what you might receive as a refund. Again, good luck with that -- you might need a "Pub. 974" to help you (see the note about "Pub. 974" below).

We're still nowhere near done with Form 8962. Once you have recorded in the appropriate spaces the monthly premium amounts you paid for Obamacare during 2014, then you need to know the premiums charged for the "Second Least Costly Silver Plan" (SLCSP) that was offered by your exchange, or Marketplace.

Why? Because the Obama administration in its infinite wisdom has determined that the "Second Least Costly Silver Plan" was the plan you should have purchased, all other things being equal. If you bought a more expensive plan, then you probably didn't deserve to receive any subsidies, and will have to pay something back. But if you bought a Bronze Plan, you just might get a tax credit -- stay tuned. You will get the cost of the applicable SLCSP from the information given on your Form 1095-A, and transfer the amount to Form 8962.

Remember that amount you calculated in line 8 of Form 8962? That was the amount that the Obama administration (again, in its infinite wisdom) determined you should have been able to contribute for insurance, given your income and circumstances. So now, in Part 2 of Form 8962, you deduct that amount from the cost of the SLCSP offered by your exchange, and the difference is the maximum PTC to which you are entitled. (If the answer is zero or less, then you should not have received any APTC, and will have to pay it back.)

And the lesser of what you actually paid for premiums, or the maximum PTC thus determined, is the actual PTC you can use for your return. If the PTC so calculated is greater than the APTC you received according to Form 1095-A, then hurrah! You will have a net PTC credit to apply to your income tax due. But if the APTC reported is greater than the PTC you calculated, you owe the difference back to the government, and will have to add that amount to the taxes you otherwise owe (subject to a possible repayment cap, as discussed below).

At this point, I have to ask the ones who purchased Obamacare last year: do you understand how arbitrary the Obama administration is being with Form 8962? First, they introduce a wholly arbitrary concept of your "income", and call it "MAGI". Then they use that number to calculate a wholly arbitrary percentage, which is your arbitrarily determined MAGI divided by an equally arbitrarily determined "poverty line" for a family of your size in your given State (and note how they lump all the 48 continuous states into one single category, while singling out only Alaska and Hawaii).

Finally, they use that arbitrarily found number to determine still another arbitrary number -- namely, the "percent" of your "MAGI" which they consider you should have been able to pay for your insurance. And based on that number, they "decide" whether or not you have been over- or under-subsidized, and penalize / reward you accordingly. All based on their arbitrarily chosen numbers -- and all requiring you to spend a major amount of your time on their required tax calculations.

Shall we see how all this will work out in practice? Here is an actual example from the IRS, taken word-for-word from the Form 8962 Instructions (pp. 10-11):

Melissa and Ryan were married at the beginning of 2014. They have no dependents. They were enrolled under the same qualified health plan through a Marketplace from January through April. Monthly APTC of $1,000 was paid for them, for a total of $4,000. They divorced April 10. Melissa enrolled in single coverage from May through December. Monthly APTC of $100 was paid for her, for a total of $800. Ryan did not enroll in coverage. At the end of the year, Melissa or Ryan will receive a Form 1095-A reporting their coverage for January through April. The recipient of the Form 1095-A should provide a copy to the non-recipient. Melissa will receive a Form 1095-A reporting her coverage for May through December. 

For 2014, Melissa's family size is one and her household income is 450% of the Federal poverty line. Ryan’s family size is one and his household income is 410% of the Federal poverty line. Melissa and Ryan agree to allocate the APTC 60% to Melissa and 40% to Ryan. The allocation is only for the period of time Melissa and Ryan were married. The sum of the APTC allocated to Melissa is $2,400 ($1,000 x .6 x 4 months). Melissa must add this sum to her APTC of $800 for her single coverage. She enters the monthly amounts on lines 12–23, column F, and the total of $3,200 on Form 8962, lines 25, 27, and 29. Melissa enters the amount from line 29 on the applicable line of her tax return. The sum of the APTC allocated to Ryan is $1,600 ($1,000 x .4 x 4 months). Ryan enters the monthly amounts on Form 8962, lines 12–23, column F, and the total of $1,600 on lines 25, 27, and 29. Ryan enters the $1,600 from line 29 on the applicable line of his tax return.

And now we come to the ultimate arbitrariness: the repayment "cap" they tout as so humane and beneficial. For those whose magic three-digit number calculated for line 5 of Form 8962 is less than 200, the maximum you will have to repay is $300 filing singly, or $600 filing jointly. If your magic number was between 200 and 299, the cap is $750 / $1,500; and if the number was between 300 and 399, the maximum repayment is $1,250 / $2,500. If, like Melissa and Ryan in the example, your number is 400 or greater, there is no limit on your repayment: Melissa has to pay back the entire $3,200 she calculated, and Ryan has to pay back the $1,600 he calculated, for a total of $4,800 in added taxes between them -- all because they signed up for Obamacare.

Isn't government marvelous? First they determine that you need something; then they cram it down your throat, whether you want or need it or not; then they make you pay more for it than they told you it would cost; next they make you spend hours more calculating your taxes so they can be absolutely certain that you got just the amount they determined you needed, and not a penny more; and finally, they sock you with having to pay back any "excess" they say you received (as they make it emerge out of their complex instructions and calculations).

Oh, and one more typical government ploy here: the Instructions for Form 8962 refer many times to a publication that you will need to have to compute your PTC if your marital status changed in 2014. That document is "Pub. 974". Well, good luck finding a copy. As of my writing this post, "Pub. 974" is not listed as an available publication on the IRS Website.

Maybe I should call them? Oh, wait -- I forgot.

If, as more and more of the middle class discover the diabolical complexities of Form 8962, there is not a tax revolt in this country, and a huge groundswell to repeal Obamacare and all of its complex and sulfurous emanations, then there is truly no hope for America. We are just a bunch of sheeple, and fully deserve to be shorn.