30 Mar Obamacare and your tax liability

 Q. When we bought our 2014 health insurance on the Federal Marketplace, we unknowingly underestimated our 2014 Adjusted Gross Income. We must now pay back the subsidy (Advance Premium Tax Credit) we received in 2014. It amounts to several thousand dollars. We normally owe very little income tax and are not required to pay estimated tax. Must we now make estimated tax payments in 2015? Most or maybe all of it might be refunded anyway on our 2015 return because we do expect to qualify for a subsidy in 2015. If we do have to make estimated tax payments, what would be the minimum we can pay without incurring a penalty for underpayment?

A. You need to do some math.

Taxpayers are required to make estimated payments if they believe that they will have a balance due of $1,000 or more when they file their annual tax return, said Steven Gallo, a certified public accountant with U.S. Financial Services in Fairfield.

He said if you fail to make estimated payments, you may be subject to penalties.

However, there are circumstances which will protect the taxpayer from this potential liability, he said.

“If you have paid in at least 90 percent of your total tax liability and file your return on a timely basis, you will be exempt from penalty,” he said. “In addition, if you have paid 100 percent of your prior year’s tax liability throughout the current tax year, no matter how much you owe in taxes for 2014, you will be exempt from penalties.”

For example, if you had a total tax liability of $5,000 for 2013 and your total tax withholding for 2014 is at least $5,000, you’d be okay.

Gallo said because the tax payment you needed to make for 2014 was due to a one-time occurrence, and assuming you are correct in your thinking that this repayment was the only reason for your tax liability, you would not need to make 2015 estimates.

Still, you should monitor your income and expenses during the year to make sure that nothing out of the ordinary has occurred that may create an additional tax liability, Gallo said, with a reminder that you can make an estimated tax payment as late as Jan. 15, 2016 if you find the need to do so.

If you determine that you do will owe more, you may have the ability to increase withholding on wages and make up the difference that would otherwise be paid in via quarterly estimated taxes, said Cynthia Fusillo, a certified public accountant with Gail Rosen, CPA of Martinsville.

One bright spot in this, Fusillo said, is that you may be entitled to relief of any resulting 2014 underpayment of estimated tax penalty.

“The IRS is granting relief to taxpayers who incurred a penalty for underpayment of estimated tax on their 2014 returns due solely to the repayment of the Advance Premium Tax Credit,” Fusillo said. “As long as the repayment is not due to willful neglect, taxpayers are otherwise current with their filing and payment obligations and report the amount of excess advance payments on a timely filed 2014 return, the penalty will be abated.”

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This post first appeared in March 2015.