2014 was the first year Americans were required to purchase a health insurance policy or pay a fine to the IRS. Many of those that purchased policies from the public exchange received tax subsidies to help pay for them. The challenge is that qualification for the subsidies is based on estimated income; and as it turns out, many Americans appear to have estimated incorrectly.

H&R Block, the nation’s largest tax preparation service, confirmed in a report that over half its customers (52% to be exact) had to pay back a portion of the Advance Premium Tax Credit (APTC) they received. This came as an unpleasant surprise for many middle income households that count on their refunds at tax time but would not have otherwise been able to afford a health insurance policy.

The average refund for taxpayers in the report was $3,100 and the average payback for Advance Premium Tax Credit reconciliation was $530, which amounts to an average refund reduction of 17%. The reason for the discrepancy was underreporting of annual income at the time the taxpayer enrolled in their health plan.

There was some good news in the report; roughly one-third of taxpayers overestimated their income and became eligible for an additional premium tax credit. Of those in this group, the average tax credit increase was $365, which added 11% to their tax refund. All in all, most taxpayers signed up for a health plan, and the average penalty for those who did not was $172.

Supreme Court Ruling Could add more Confusion for Taxpayers

In late June, the Supreme Court is expected to rule on King V. Burwell; the case that will decide if it is legal for taxpayers to receive subsidies if they purchase their health plan from a federally run exchange. Currently, only 13 states run their own exchanges, meaning taxpayers in the other 37 states (including Arizona) may no longer be able to receive subsidies if the Supreme Court issues an unfavorable ruling. Federal and state lawmakers are discussing potential contingency plans to help those who are impacted, but there is little agreement about how they will resolve this issue.

If you have a health care plan purchased from a public exchange and are unsure if you qualify for subsidies, it might be to your benefit to seek a second opinion. As the aforementioned report showed, many taxpayers were actually eligible to receive more than they claimed at the time they bought insurance. For further guidance on this and how the upcoming Supreme Court ruling may impact you, speak to a local tax professional.