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Covered California messed up my tax form. What should I do? (updated)



Covered California sent postcards to 100,000 households statewide, letting consumers know the tax form they already received was wrong and to wait for a new one.
Covered California sent postcards to 100,000 households statewide, letting consumers know the tax form they already received was wrong and to wait for a new one.
Photo by 401(K) 2012 via Flickr Creative Commons

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For people in about 100,000 California households, taxes just got a bit more complicated.

Here's the gist: Everyone who purchased health insurance through the state-run exchange received a tax form from Covered California. Except some of those forms were wrong.  Now, the agency is scrambling to send out new, accurate forms.

Something similar happened at the federal level, too. Healthcare.gov had to send out corrected tax forms to more than 800,000 taxpayers in states where the federal exchange is active.

KPCC health reporter Elizabeth Aguilera joined Take Two this morning to talk about this situation and what consumers should know. Here's some background information and her tips:

What went wrong?

The Covered California errors revolve around inconsistencies of enrollment in subsidized health insurance plans. For instance, someone may have been enrolled for only three months but the tax form says they were enrolled for six months. (The federal problem was different – it was about incorrect premiums on the forms).

Covered California's mistake matters because the amount a household owes in taxes will depend on the amount of subsidy they received. And if the form - known as a 1095A - says they received more than they really did, their tax rate will be based on those erroneous figures.

How do you know if you have been affected by this mistake?

You'll know you're affected if you received a postcard from Covered California explaining the error or if you caught it yourself before the postcard arrived.

What has Covered California had to say about this?

This is the first time Covered California has issued these tax forms and they said they are still working out the process.

Covered California spokesman James Scullary explained it this way: "We are dealing with a multitude of information that is going back and forth, depending on when people enroll, coverage times, when their payment is made. There can be discrepancies between what's on our record and what is on the health plans' records."

How is Covered California working to fix it?

The agency says it's reconciling the data they have with the insurance companies to be sure everything is accurate on the corrected forms. And they say the corrected tax forms should arrive in late February or early March.

Are consumers going to get their corrected forms before tax day and can those affected get an extension on their taxes?

According to Covered California, the forms should arrive before April 15th. 

But if consumers think they are going to need more time, they should check with their accountant or the IRS about filing for a  tax deadline extension.

If the government thinks a consumer was on the program longer than they really were, is the insurance company benefiting from the incorrect subsidy?

Covered California's Scullary says it's not likely - but he didn't rule it out. 

"I suppose that's possible but certainly... the health insurance companies will have a reconciliation with the IRS just as we do and all the information is going to have to align," he says.

Scullary says the federal government disburses the subsidy dollars to the health insurance companies, based on reports they get from Covered California. 

How exactly do the subsidies impact a family's taxes?

 Here's how it works: The subsidy for 2014 was based on what a consumer estimated they would earn that year. If they ended up earning more than they estimated, they could owe based on receiving more subsidy than they should have.

This will mostly impact those who bought insurance through the exchange while they were unemployed or freelancing but then later secured a full-time job that raised their overall annual income.

On the other hand, if a person earned less than they thought they would, they may get a bigger credit because they didn't receive all the subsidies they were entitled to during the year. 

So what should consumers do if they received a postcard or believe their tax form is wrong?

There are three categories of consumers that we are talking about here. For the record, we are not talking about those who received a correct form and who can go ahead and file taxes.

  1. Consumers who received a correction postcard from Covered California and who have not filed taxes, should wait for the new tax form before filing their taxes, says Scullary.
  2. Those who received a correction postcard from Covered California after filing their taxes, should wait for Covered California to send them the corrected form. Then, they should take it to their tax agent to find out if they need to amend their taxes, the agency says.
  3. The third group are households who did not receive a postcard but believe their tax form is incorrect. Covered California says they should submit a dispute form and explain the discrepancies between the agency’s form and their personal records. Covered California says it will review and respond to all disputes.

Lastly, what about those people who are now facing more taxes than they banked on paying because they didn't sign up for insurance?

Californians who didn't sign up for insurance last year are stuck paying the penalty for 2014. No way around that. 

But for those who weren't aware of the tax penalty, they have a second chance to avoid penalties for 2015. Covered California  says those folks will have until April 30th to purchase insurance.  All they have to do is attest on the application that they didn't know they would face a tax penalty.

I hear the IRS is giving people who used the federal exchange a break. Does that mean we get one too?

No, Californians are not included.

It's true that the federal government announced that those who already filed taxes using erroneous forms do not have to file amend returns, even if they owe more. But that applies only to people who used the federal healthcare.gov exchange.

So California taxpayers, if you already filed your taxes you have to wait for the corrected form and file an amended return if you determine that the amount you owe has changed. 

Tax preparers H&R Block and Turbo Tax say they will waive fees for customers who need to amend their returns.

Clarification: Updated to reflect that the Dispute Form provided by Covered California for families that need to dispute their tax form is not the appeal form.