Learning how premium subsidies are calculated and reconciled is about as complicated as the entire United States tax code. Although the IRS doesn’t plan on aggressively recovering tax penalties assessed for not having insurance, the same does not apply if you owe the IRS for overpaid premium subsidies. Rest assured – they will be coming after you! So how can you avoid this dilemma?
Subsidies for 2014 are calculated based upon financial information you provide to the federal exchange or state marketplace outlining what you believe is your estimated modified adjusted gross income for 2014.
Now we all know that if there is one thing for sure in life – it’s change! Nothing ever stays the same. You could get a new job, lose a job, have a spouse that begins working or stops working or have an increase or decrease in household size. All of these factors affect your premium subsidy. For example:
The Johnson family is a family of four from Denver, CO. Mr. Johnson is self-employed as an accountant and earns approximately $60,000 annually. This qualifies the family for a premium subsidy of $2,763 for 2014.
Mrs. Johnson begins a new job mid-year and earns $39,000 in 2014. This gives the family a combined annual income of $99,000. In this case, the family is ineligible for a premium subsidy and will have to repay any advanced premium subsidy they received in 2014 (subject to repayment caps).
How the IRS Fits into the “Premium Subsidy” Picture
Premium subsidies are reconciled once you file your federal tax return. The IRS will determine the appropriate premium subsidy based upon your modified adjusted gross income. If you chose not to receive your premium subsidy in advance, you will receive it in the form of a tax refund, less any taxes you might owe.
If you received an advanced premium subsidy and the IRS determines you should have received a higher subsidy, you’ll also receive it in the form of a tax refund, less any taxes you owe. If however, your subsidy should be lower or not at all, you will be required to repay all or part of your premium subsidy to the IRS.
Take Measures to Avoid Premium Subsidy Over or Underpayment
To avoid an unexpected tax bill, it’s best to notify the federal exchange or state marketplace in certain instances. By reporting these changes in a timely manner, advanced premium subsidies can be adjusted immediately to prevent inaccurate over or underpayments, which could result in you owing the IRS or getting a larger refund! You’ll want to report the following changes:
- Increase or decrease in income
- Change in household size (birth of a child, adoption, loss of family member)
- Marriage or divorce
- If you gain access to health insurance through your employer, Medicare or Medicaid
- If you move
If you have any questions about your premium subsidy and how it affects your health plan, always contact your Personal Advisor. Our goal at HSA for America is to help you keep as much of your money in your pocket – and away from the IRS!
Do you have any questions about premium subsidies? Have you experienced a significant change that could affect your premium tax credit? We want to hear your story!
Wiley Long is President of HSA for America, and a passionate advocate for consumer-based solutions that will improve price transparency and lower health insurance and medical costs for people purchasing individual and family health insurance plans.