As spring approaches and gardening season begins, questions regarding Affordable Care Act (ACA) subsidies are also budding. The top questions seem to be one of these two:
- Will I receive a health insurance subsidy tax refund, or
- Will I have to pay back my ACA subsidy?
The answers to these questions may surprise many who are enrolled in an ACA health insurance exchange marketplace plan.
ACA Subsidy Garden Plan
The ACA allows for government subsidies to carry the weight of health insurance that middle-class taxpayers cannot be expected to pay comfortably of their own accord. The financial help arrives as premium tax credits and cost-sharing subsidies, which are available to those with incomes 100% to 400% of the federal poverty level and based on the income reported on the previous year’s tax return.
ACA Subsidy Guideline Limits
|Income (based on federal poverty level)||Annual Household Income for an Individual||Individual Payback of Obamacare Premium Assistance||Annual Household Income for a Family of Four||Family Payback of Obamacare Premium Assistance|
|Less than 200%||Under $22,980||Capped at $300||Under $47,100||Capped at $600|
|At or above 200% to 300%||$22,980 – $34,470||Capped at $750||$47,100 – $70,650||Capped at $1,500|
|At or above 300% to 400%||$34,470 – $45,960||Capped at $1,250||$70,650 – $94,200||Capped at $2,500|
|Greater than 400%||$45,961 and higher||Full amount received||$94,201 and higher||Full amount received|
A Great Refund Crop or A Bad Payback Crop Year?
Research by the Kaiser Foundation has shown that people who receive healthcare marketplace subsidies are likely to partially pay them back at an average of $794. This trend results from taxpayers’ natural inclinations to earn more than they did in the previous year and other changes in their status.
Changes that can affect the amount of taxpayers’ actual premium tax credit include:
- Increases or decreases in household income—including lump sum payments such as Social Security benefits,
- Marriage or divorce,
- Birth or adoption of a child,
- Gaining or losing eligibility for other health care coverage including eligible employer-sponsored or government-sponsored coverage (such as Medicare), and
- Moving to a different address.
Below are select examples of financial changes that could provide an ACA subsidy payback:
- Withdrawal from an IRA, which could increase income and require a household to repay a subsidy.
- For instance, a couple making two incomes of $39,000 combining into a household income of $78,000 would yield paybacks.
- Regaining employment. Specifically, increasing income to normal levels after a period of unemployment could result in paybacks.
- Increasing wages. A taxpayer who receives a promotion or raise is subject to a payback due to increased income and lack of tax credit eligibility.
The following financial changes could warrant a refund:
- Change in number of family members,
- Reduction of taxpayer’s income, and
- Marriage. For instance, a person making $60,000 marrying a stay-at-home partner would likely receive a refund.
A Harvest of Reaping Rewards
The risk of unexpectedly paying back these government healthcare subsidies prompts serious concerns. CRI has prepared four helpful guidelines.
- Set aside funds in a separate account to pay back subsidies.
- Throughout the fiscal year, immediately report any income and life changes to the IRS. Making these reports automatically adjusts your premiums.
- Pay your entire pay premium every month and receive the tax credit later in an IRS tax refund.
- Purchase a private major medical insurance plan. Though not eligible for tax credits and cost-sharing subsidies, these plans are considered minimum essential coverage and are attractively priced. Additionally, they meet the same ACA required essential benefits and requirements as Marketplace plans. Examples include:
• Preventive care,
• Prescriptions, and
• No increased premium penalty or refusal of coverage due to preexisting conditions and/or health history.
And, most importantly, meet with your CRI tax CPA to discuss your specific circumstances and find the best strategy. Our ACA subsidy “green thumbs” are here to help!