ObamaCare and tax evasion

The Affordable Care Act (aka ObamaCare) may help reduce tax evasion, especially in states that don’t expand Medicaid eligibility. That’s because people whose projected income is between 1x and 4x the poverty level will be eligible for federal subsidies to purchase insurance on the new marketplaces (also called exchanges). There’s an incentive to report more income in order to be eligible for subsidies.

Kaiser Health News (In states that don’t expand Medicaid, some of the uninsured may still get help) doesn’t discuss the tax compliance issue directly, but does note that there’s a potential strategy for people to estimate their incomes optimistically in order to qualify for subsidies.

I’ve seen anecdotal evidence of this phenomenon in Massachusetts, since RomneyCare was instituted. Some babysitters and other informal workers started asking their employers for letters stating their hours and wages in order to qualify for subsidized insurance here. It may or may not have made economic sense for these workers to start declaring income, but it gave one more push toward getting on the books and going legit.

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