It seems that there is no shortage of people and groups who are sending out news about all of the different aspects of the Affordable Care Act, with so-called experts weighing in on every possible issue. You might think that you are well-informed if you read the papers and watch the news, because there has been so much media coverage about the health care reform laws.
Sadly, though, a good number of the experts have been dispensing information that is either misleading or absolutely wrong. This means that no matter how informed you try to be, you may still not have all of the pertinent information at hand to make your health insurance decision.
Is My Subsidy Going to Be Taxed?
One of the biggest—and most potentially damaging—bits of misinformation floating around has to do with how the IRS handles your premium subsidy or tax credit. For example, one company in South Carolina has been telling its customers that they will be receiving a 1099 for their premium subsidy, with the implication being that the premium subsidy they received is taxable income. This is untrue. People are also being told that their income for 2012 is how their subsidy amount is calculated, which as another falsehood.
I thought it would be a great idea to go directly to the IRS to make sure my readers have the correct information about the federal subsidies available to them. There is enough anxiety about the Affordable Care Act without adding fears about the IRS to the mix!
Rest assured that no matter what your particular health insurance company might tell you, the premium subsidy you receive is not considered taxable income. You will not be receiving a 1099 (the form used to report income that has not already been taxed) at tax time, nor will you be required to declare this money in any way.
Instead, when tax time comes around, you will handle your premium subsidy in one of two ways.
• If you received your premium subsidy in advance (in which case it is paid directly to the insurance company and your monthly premium will be lowered), you will receive a form from the IRS and you will reconcile the amount paid vs. the amount you should have received based on your actual taxable income and family size.
• If you choose to pay your premiums in full every month and claim the tax credit in its entirety when you file your taxes, you will either receive the premium subsidy as a refund or a smaller tax bill, depending on your income.
How Is My Subsidy Calculated?
When it comes to calculating how much subsidy you qualify for, you will estimate your income for the 2014 tax year. You should make this estimation based on your current employment wages as well as that of anyone in the household who is listed as a dependent on your tax return. For example, if both you and your spouse work, you need to estimate your income based on both salaries.
If your 2014 wage estimate is incorrect, you might be required to repay any excess premium subsidy you were not entitled to (in the case of an underestimation of your 2014 wages) or you might receive an additional refund if you overestimated your 2014 wages. The tax bill could be considerable depending on the difference between your estimate and your actual 2014 income, so it is extremely important that you project your income as closely as possible.
It is also important to notify the federal marketplace if you have any substantial changes in either income or family size as soon as they occur. This way, your premium subsidy may be adjusted according to the changes and you can avoid receiving an unpleasant tax letter from the IRS.
What If I Have Health Insurance Through Work?
Another issue that has been reported incorrectly is the premium subsidy available if you are covered by an employer group health plan. The general impression is that if your health insurance is provided by an employer, you are automatically ineligible for any type of subsidy or tax credit. This is untrue, as there are certain other scenarios where you will qualify for a premium subsidy even if your employer offers insurance.
• If the premium for your insurance is higher than 9.5 percent of your modified adjusted gross income (MAGI), you can still purchase insurance on the health exchange and receive a subsidy.
• If your spouse is excluded from coverage (meaning your employer does not offer insurance to your spouse), your spouse and children can purchase on the exchange and qualify for a subsidy or tax credit.
However, keep in mind that if your employer does offer coverage for your spouse and the premium is too expensive, you will be unable to claim a tax credit as long as the premium for your insurance alone (not including that of your spouse or other dependents) is less than 9.5 percent of your income. This means that no matter how expensive the premiums in total are, you will have to pay them or pay the penalty for having uninsured household members.
There is other useful information regarding the federal marketplace insurance exchange and how the premium subsidies work on the IRS website. Also, be sure to talk with a licensed insurance agent or broker before making a health insurance purchase either on or off the exchange. This way you can be sure that you have all of the relevant information you need to make a wise health care decision.