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This paper has been updated to reflect the instructions IRS released last week for draft IRS Form 8962 and draft IRS Form 8965.

Over the past month, the IRS released drafts of seven new tax forms it will use to monitor Americans’ compliance with Obamacare’s individual and employer mandates, as well as the law’s complicated subsidy scheme. Together, these forms take 13 pages and contain 206 lines for entries. Instructions for these forms make up another 46 pages. Even many of the law’s most ardent supporters describe the forms as complex and dense. 

New IRS paperwork burden

The president has requested that the IRS receive nearly half a billion dollars in fiscal year 2015 to implement Obamacare. In contrast, genuine, consumer-based reform would have improved the country’s health care system without increasing the IRS’s power, complicating the tax code, and raising compliance costs for taxpayers.    

IRS’s Outsized Role in Enforcing Obamacare

Obamacare dramatically increased the size and power of the IRS – an agency shown over the past year to be untrustworthy and partisan – and its role in the American health care system. For starters, over the next decade, Obamacare hiked taxes by more than $1 trillion, through more than 20 tax increases. The IRS faces enormous challenges in implementing these new taxes. For example, last month the Treasury Department’s inspector general for tax administration found that IRS was unable to properly collect the medical device tax.

Early next year, the IRS will begin collecting revenue from Obamacare’s individual mandate tax penalty. Americans who fail to obtain insurance that complies with numerous Washington mandates – and who fail to qualify for an exemption from the individual mandate – face penalties of $95 ($285 per family) or one percent of household income, whichever is greater. To collect this penalty, the IRS will target people’s tax refunds.

After a one-year delay, the employer mandate takes effect next January for businesses employing the vast majority of Americans. Employers that have more than 50 full-time workers and fail to meet certain arbitrary criteria set by the administration will be subject to tax penalties of up to $3,000 per worker.

The IRS also plays a key role in implementing Obamacare’s complicated subsidy scheme. The health care law authorizes tax credits for people in households with income between 100 percent and 400 percent of the federal poverty level, who can’t get insurance through work or through a government program, and who reside in states that established their own exchanges. In 2012, the IRS issued an illegal rule that also extended these tax credits to people in states that use the federal exchange.

IRS’s Complicated New Obamacare Forms for Individuals

People who claim a tax credit will receive Form 1095-A from the exchange, and they will be responsible for filing Form 8962 with the IRS. Form 1095-A provides information about the type of plan the person purchased, as well as the amount of the advanced tax credit received. Form 1095-A has 33 lines for entry. It contains 56 boxes for entries for single filers and 74 boxes for entries for married filers with two dependents. Even a pair of supporters of the law, writing on the Health Affairs blog on August 4, acknowledged concerns about the forms: “[F]or tax filers accustomed to handling one or more W-2s and perhaps their bank’s 1099, the new 1095s with over a dozen data fields will be mystifying. Some tax filers will receive multiple 1095s from Marketplaces, employers and insurers.”

Form 8962 allows households that claim a premium tax credit to calculate the correct tax credit amount and the amount that will need to be reconciled. The form has 36 lines for entry and will require filers with any change in coverage during the year to fill in 72 boxes (six boxes per month). Altogether, Form 8962 has 95 boxes for entries for single filers and 133 boxes for entries for married filers with two dependents. People who previously used IRS’s short form (1040EZ) to file their return, and who receive credits this year, will need to switch to the more complicated long form (1040 or 1040A).

Instructions for Form 8962 consist of 15 pages of complicated terminology and worksheets that will take the average tax filer hours to understand, will be incredibly frustrating, and will undoubtedly result in many inaccuracies. . Because of the convoluted structure of Obamacare’s subsidy scheme, the instructions have to explain how tax filers should allocate tax credits under certain conditions and how they should correctly calculate tax credits if household size changes during the year, such as through marriage, divorce, birth of a child, or death of a family member. Despite their length, the instructions fail to provide directions for filers to figure out whether offered employer coverage satisfies Obamacare’s minimum essential coverage requirement.

Taxpayers who claim one of the 19 exemptions from the individual mandate must file Form 8965 with the IRS. As many as 23 million Americans may have to file a Form 8965 for the 2014 filing season. The form has 21 boxes for entries for single filers and 78 boxes for entries for married filers with two dependents. Instructions for Form 8965 take 12 pages and contain five worksheets. One tax expert told Politico, in an August 11 article, that the application requirements for some of the exemptions are “hopelessly complex.” Liberal supporters of the law agreed, telling the paper: “The folks who are helping consumers are reeling. A consumer can’t be expected to understand this.”

A prominent Obamacare supporter, wrote in a September 21 Health Affairs blog post, “It is difficult to overstate how complicated the [forms’] instructions are.” He attributed much of the complexity to the many exceptions and special rules added by the Obama administration during the health care law’s implementation. “Many of the mostly low income Americans who will be completing these forms … have been accustomed to filling very simple tax forms like the 1040-EZ (which cannot be used by an individual claiming a tax credit) or perhaps not to filing taxes at all. They are likely to be confused, frustrated, even angry, and certainly bewildered, completing these forms.”

IRS’s Complicated New Obamacare Forms for Businesses

The instructions for Form 1094-C and Form 1095-C contain 13 pages of dense and complicated material. The forms are for businesses with more than 50 full-time employees to report information to the IRS about the health insurance they offer and which of their employees have enrolled in the company plan. These forms also allow the IRS to determine whether businesses owe employer mandate tax penalties. Form 1095-C consists of 52 boxes for entries for single employees and 78 boxes for entries for married filers with two dependents. Businesses must file a Form 1095-C for each person they employed during the year. Much of these forms’ complexity arises from the arbitrary exemptions to the employer mandate that the administration issued for 2015.

Form 1094-B and Form 1095-B, which must be completed by certain self-insured employers, provide the IRS with information about which of their workers are adequately covered and are therefore not liable for the individual mandate tax penalty. The Obama administration decided that these forms, like Forms 1094-C and 1095-C, are not required for 2014. Although employers are free from the burden of filling out these forms this year, the administration’s decision means that the government will not be verifying one of the qualifications for receiving the tax credits. That means Washington will waste money giving tax credits to people who do not lawfully qualify for them.

Tax Time Will Be Unpleasant for Many Exchange Enrollees

While paying taxes is often discouraging for people, given how much money the federal government wastes, many families anticipate receiving income tax refunds each year. According to H&R Block, refunds average $2,500 to $3,000 and often represents the filer’s largest financial transaction of the year. People often urgently need their refunds to pay important bills. The health care law could threaten those refunds for millions of Americans.

Most people receiving subsidies to buy insurance through the Obamacare exchanges get them in the form of a monthly check sent from the Treasury to their insurance company. Since monthly subsidies were based on an estimate of what recipients would earn during the year, at tax filing time taxpayers will have to reconcile the amount Treasury paid out during the year with how much it should have paid. Many Americans, particularly those who earned additional income during the year, will find that Treasury sent too high of a payment to the insurance company on their behalf

Although the Treasury was cutting checks to the insurer, the IRS will go after the taxpayer for any overpayment. This problem will be compounded since, as Health Affairs noted last month, “[m]any subsidized enrollees will probably not recall ‘receiving’ advance tax credits, since the advance credits simply offset … premiums.”

The seemingly endless problems with HealthCare.gov will likely delay many filers from receiving their returns on time. Exchanges were supposed to start reporting information about enrollment and exemptions at the beginning of the year. However, because of problems with the web site and related information systems, the first monthly report is not scheduled to be delivered until October 15, 2014. As a consequence, there will be little time to ensure the enrollment and payment information is accurate prior to when the forms must be filed with the IRS. If these forms are late, lower-income taxpayers who need them to file their return will have to wait, delaying their refund.

Millions of Americans are being hurt by Obamacare through lower wages, higher premiums, reduced choices, and a loss of coverage that they liked. The IRS’s large role in enforcing the law’s perverse scheme of taxes, mandates, and subsidies adds to the law’s many problems and will hit millions of families squarely in the wallet come tax time.