Health care tax rules trip up some immigrants
The deadline’s coming to file tax returns, and aside from the usual headache, this year it’s proving particularly thorny for undocumented immigrants. That’s because, for the first time, there are penalties under the Affordable Care Act for those lacking health insurance.
But the law is complex, and when it comes to people living in the U.S. illegally, many are getting slapped with fines they shouldn’t have to pay.
Adalberto Martinez, a mechanic at an auto body shop in Chicago, is one of them. Like many undocumented immigrants, Martinez pays income taxes, using an IRS-issued taxpayer identification number, called an ITIN. But this year, he noticed something different when he sat down with his tax preparer.
“They told me that there’s a box where you have to answer whether you have insurance or not,” he explained in Spanish. “So she put down that I didn’t have insurance. She didn’t explain to me exactly why, just that there was a box there and I didn’t have insurance.”
Afterwards, Martinez found he was hit with a $200 fine for not having health coverage in 2014. The official name for the penalty was the “shared responsibility payment.”
Most lawful U.S. residents are required to have health coverage under Obamacare, and those who don’t will have to pay the penalty. But under the law, undocumented U.S. residents, like Martinez, are exempt from all that. But Martinez’s story is not unique.
“We’ve heard from at least 10 to 15 organizations that have been hearing this issue in the community,” said Luvia Quinones, health policy director at the Illinois Coalition for Immigrant and Refugee Rights.
Quinones said it’s not clear how many undocumented immigrants may have improperly paid the fine, but she said thousands in Illinois could be at risk.
“We know that in the state of Illinois, there’s about 310,000 undocumented, uninsured individuals in addition to about 70-80 thousand DACA youth that are eligible also to get their work permit,” she said.
DACA youth, also known as DREAMers, are immigrants that arrived in the U.S. as children and obtained temporary relief from deportation under President Obama’s Deferred Action for Childhood Arrivals program. They have valid Social Security numbers, which could be used to file tax returns. This puts them at particular risk for mistaken penalties, because while their Social Security numbers may suggest that they are lawful U.S. residents, and therefore subject to the health care penalty, Obamacare explicitly excludes them from the health coverage requirement.
Quinones said in some cases, she believes immigrants are being entrapped in fraudulent schemes by unscrupulous tax preparers who are pocketing the penalties themselves. An advisory from the IRS indicates that the federal agency is aware and concerned about these reports as well.
But often, Quinones said, these instances are mistakes, where tax preparers are unclear about the new law.
That’s what Graciela Guzman found when she was forced to tackle the issue. As a health care navigator at Primecare Community Health, a bilingual clinic in the city’s Wicker Park neighborhood, she helps people enroll in health insurance plans.
Technically, Guzman’s job has nothing to do with taxes, but recently patients whom she’d told were ineligible for health coverage under Obamacare started showing up at her clinic. They’d prepared their tax returns, and they were mad at her.
“Like, ‘you told me I was not going to get penalized,’” Guzman recalled them saying. “Like, ‘you educated us and you said we are not going to get penalized, and we got penalized. Why?’”
Guzman realized lots of tax preparers were making mistakes, so she and her colleagues decided to educate them.
On a recent weekday afternoon, she canvassed Fullerton Avenue in the Belmont-Cragin neighborhood on foot, carrying a bag of informational flyers.
“We’ll hit a new corridor every two or three days,” she said. “We’ll probably hit 10 to 15 income tax places per corridor, so we’ve probably hit about 120 income tax places.”
Guzman pops into tax preparers’ offices, as well as check cashing sites, speaking briefly in Spanish to explain her purpose, and to leave a stack of papers. The sheets detail, in English and in Spanish, how undocumented immigrants should claim an exemption from the penalty.
Guzman said the penalty can be a hardship for many people at her clinic. It’s at least $95 per adult who’s not insured. But in most cases it’s a lot more, depending on the family’s income.
“A penalty of $300-$400, it can absorb half if not more of what they would have gotten back in refund,” she said.
So why has it been so hard to get it right? One reason is that none of the information you provide on your tax return is an absolute indicator of your residency status. Not everyone who files taxes using an ITIN is undocumented; conversely, not everyone with a Social Security number is a lawful U.S. resident.
There are different opinions on how tax preparers should handle this.
“If they are using services of a tax preparer, they should tell preparer directly that immigration status is that of someone not in the U.S. legally,” said Enrique Lopez, a CPA in Chicago. In fact, Lopez said that his office will refuse to file a tax return for a client who does not disclose his or her residency status.
But others worry that this might backfire.
“I think not only is it going to create more fear in the community, but it could also affect the likelihood of undocumented individuals or DACA youth wanting to file taxes,” said Quinones.
Instead, Quinones recommended that tax preparers keep things general. Instead of asking whether a client is undocumented, he or she could ask if the client qualifies for any of a number of exemptions that fall under the same code. That way, someone who’s undocumented can indicate that they are exempt without disclosing the specific reason why.
As for Martinez, he was able to go back to his tax preparer and file a tax return amendment. He hopes he’ll get his $200 back. In the meantime, he said he’s doing a little outreach himself.
“I started telling people,” he said, through a translator. “My cousin in Indianapolis, he came to Chicago, and he told me they charged him $300. I told him, ‘Hey cousin, you need to find out what happened ‘cause they shouldn’t have charged you.’”
Meanwhile, immigrant advocates and others are warning the public that anyone who pays the penalty directly to a tax preparer, by cash or otherwise, may be a victim of fraud. The IRS recommends filing a form to report the activity. Consumers may also file a complaint with the Illinois Attorney General.
In cases where someone has improperly paid the penalty to the IRS, they can file a tax amendment to get the money back. Get Covered Illinois advises anyone with questions about the health care requirement or the tax penalty to call its hotline at 866-311-1199.
Ivan Favelevic and Aurora Aguilar assisted with language translation for this story.