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Where is My Tax Refund?

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ICCF Tax Refund 2016

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If you filed your taxes this year and received a lower refund — or even worse, owed money — your health insurance coverage may be to blame.

This year, many taxpayers didn’t get the normal refund they expected because they underestimated their income on the Marketplace, which provides government-subsidized health insurance plans.

If you haven’t changed your withholding and are buying insurance on the Marketplace, you may owe the government money. Why? Because anyone applying for health insurance via the Marketplace must estimate their income. The government then uses this figure to determine what level of health care subsidy you qualify for. Overestimate your income and you’ll likely get money back, but underestimate and you’ll likely have to repay a portion of the subsidy you received.

According to H&R Block, 61 percent of tax filers had their refunds reduced by an average of $729 because they underestimated their income when they signed up for insurance. Filers who did have to repay owed an average of $530, while those who overestimated their incomes had their tax refunds increase by $365.

Unfortunately, we’re seeing more cases of individuals understating or misstating income when completing the subsidy application. Some extreme cases have resulted in almost two years of clawback in an individual’s premium subsidy when the person is self-employed and files an extension until October and then doesn’t find out until late September that they have to pay back subsidy dollars for all of 2014 and nine to 10 months of 2015. In these cases, the clawback exceeds the historic refund and results in additional tax payments.

To avoid this scenario, do your absolute best to estimate your income. Look at your previous year’s tax return to better gauge how much you’ll make this year, plus factor in any raises, bonuses or outside income you’ll receive. If you changed jobs and now make a higher salary, report any changes in your income to the Marketplace. Use this IRS tool to estimate how your premium tax credit will change if your income changes. As an extra precaution, also set some money aside in case you need to repay when you file your annual return.

Self-employed filers, in particular, have significant exposure because they have variable income, which can be difficult to estimate. Talk to a qualified financial planner or tax professional to get advice about how to reduce your tax exposure. It’s also important for W-2 employees to monitor their wages and ensure that any change in income — whether an increase or decrease — is reported to the Marketplace. Doing your due diligence could save you plenty of money and reduce any headaches come tax time.

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