Did you overpay the Obamacare tax penalty?

More than 300,000 taxpayers have overpaid the IRS because they incorrectly indicated that they owed the Individual Shared Responsibility Payment (ISRP), the tax penalty related to the Affordable Care Act, on their 2014 tax return.

This was discovered and outlined in a annual report by the National Taxpayer Advocate. When it sampled IRS tax return data, the NTA found that a large number of taxpayers didn't owe the penalty that they incorrectly indicated on their tax returns.

The penalty is required for taxpayers who don't have health insurance that complies with the Affordable Care Act, also known as Obamacare. The taxpayers in the sample didn't actually owe the penalty tax because their income was below the threshold and thus they were exempt from what's known as the "individual mandate."

The NTA report found that the average ISRP paid was over $110.

Here's what you need to know: If your household income in 2014 was below the threshold for triggering the penalty and you included an amount on line 61 of your 1040, you should be eligible for a refund of the amount included on line 61.

Of course, it would be a simple matter for IRS computers to review your tax return to see if you had incorrectly paid the penalty and if you did, automatically issue a refund check.

But don't expect that to happen. Even though the chief counsel of the IRS advised that the agency has the legal authority to do this, it's balking. In my opinion, that's because it lacks the resources for identifying and processing these refunds.

We all know that 2014 was a disastrous year for the IRS, whose funding has fallen by about 17 percent since 2010. It now answers only 37 percent of taxpayer calls. Calls that were answered were put on hold for over 23 minutes. Also, the IRS has also been slammed for improper use of its authority, waves of identity theft and processing fraudulent tax returns and refund claims. In short, the IRS is severely challenged.

So, instead of promptly returning taxpayer money that was clearly overpaid, the IRS is considering sending "soft notices." These would include adjusting accounts in collection proceedings by the amount of the overpaid tax.

What if you're not in a collection proceeding with the IRS? The agency's position is that it's your responsibility to take the initiative to claim a refund for the excess ISRP tax.

Of course, the IRS knows the reality is most affected taxpayers won't file an amended return to claim their refund because the amount is so small and the time and cost of incurring additional tax prep fees would outweigh the amount overpaid.

If you overpaid this Obamacare tax and you prepared your return using a computer program, you should be able to prepare an amended return. Just don't expect to get a refund anytime soon. It'll likely take a while before you see the money.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.