If you are an Obamacare recipient, you may find you owe money at tax time for Obamacare subsidies that you received if you had income or life changes in the year that you didn’t report to the Marketplace.
Most people who purchased Obamacare plans found they were eligible for subsidies to help offset the cost of their insurance premium payments. These subsidies are officially called “premium tax credits”. Enrollees had the option of applying none, some, or all of their premium tax credit to their insurance costs. Those that applied some or all saw their monthly premiums lowered as a result. Those who chose not to apply the premium tax credit to their plan at the time would instead see the tax credit applied to their tax returns — either lessening a balance owed, or adding to a refund amount.
Subsidies were calculated based on a person’s income and family size. In a situation where an enrolled person has had a straightforward year from start to finish with no major life or income changes to report, it is likely that there will be no problems or unwarranted surprises at tax time.
If, however, an enrolled person received their premium tax credits to help offset the cost of their premiums, but then had a life change or income change, their income tax returns will probably be affected. Examples of such changes include, “A move, an increase or decrease in income, a marriage or divorce, the birth or adoption of a child, whether you started a job that offers health insurance and whether you gained or lost eligibility for other health care coverage.”
Once you file your tax return next spring, the IRS will look at your actual income earned in 2014, and will compare it to the amount of income that was estimated and entered on the enrollment forms for Obamacare. The Centers for Medicare and Medicaid Services have recently noted that “at least 279,000 households reported incomes that still don’t match what the government has on record”. For those households, documentation has been requested and needs to be received by September 30th.
For those who have had a life or income change during the past year, it is imperative to report it now if it already hasn’t been reported to the exchange — either a state exchange or healthcare.gov. In this way, if tax credits need to be adjusted up or down based on the change, it’ll be done ahead of tax time.
For those whose life change may have potentially decreased the amount of tax credit available, filers may find they owe at tax time. Here’s how:
“Premium tax credits are available to individuals and families with incomes between 100% of the federal poverty line ($23,550 for a family of four this year) and 400% of the federal poverty line ($94,200 for a family of four) who purchase coverage in the health insurance marketplace in their state.
The tax credits are paid directly to the insurer, if taken in advance. People are not required to take the entire credit in advance. Realistically, if you cannot afford insurance, you’d need some credit in advance.
To be sure, there are some caps on the amount filers must pay back and the cap is based on household income. The cap ranges from $300 to $1,250 for some single taxpayers and $600 to $2,500 for married taxpayers, again based on income.
But if the income is 400% or more above the poverty line, there is no cap and the taxpayer must pay back the full amount.”
Health care officials realize that many people aren’t aware they are expected to keep their life and income information current, but because the proper subsidies depend on accurate information for accurate calculations, they are trying to get word out.
If you think you might have changes that could potentially impact your tax credit, you can use this calculator from the Kaiser Family Foundation website to assess your situation.