Why Premium Subsidies Could Cost You at Tax Time

premium subsidiesUnderstanding the calculation of premium tax credits is like trying to unravel the U.S. tax code. The IRS states they won’t take aggressive action collecting penalties imposed on individuals for not having insurance – they’ll simply deduct it from future refunds, but if you received inaccurate advanced premium tax credits, you might not be so lucky! Will you be one of many unfortunate US taxpayers owing the IRS next year?

Premium subsidies are computed using information provided by you to estimate your income this year. Connect for Health Colorado determines your subsidy, and most individuals choose to receive this in the form of an advanced premium tax credit – rather than waiting until tax time to get a refund.

But it goes without saying that things change! A change in income, new job, or change in household size could have detrimental effects on the amount of premium assistance you should receive.

Here’s one example:

The Anderson family of four lives in Denver, CO. Mr. Anderson owns his own landscaping business and estimates his 2014 income at about $60,000. The family qualifies for premium assistance in 2014 totaling $2,763.

Mid-year, Mrs. Anderson starts a new career earning $39,000 for the remainder of 2014. The combined family income for 2014 is now $99,000. Unfortunately, the Anderson family no longer qualifies for premium assistance and will be required to repay the IRS any advanced premium tax credits received in 2014 based on the repayment limits set by the IRS.

Where the IRS and Health Care Come Together

Premium tax credits will be reconciled when you file your 2014 federal taxes. The IRS steps in and reviews your modified adjusted gross income and then calculates your exact premium tax credit. If you didn’t receive this in advance, you’ll be one of the lucky Americans getting a tax refund, minus any taxes you owe.

If you chose to receive your premium tax credit in advance but the IRS finds you received too much, you’re on the hook for any overpayment, and this will be withheld from any future refunds you are due. If your subsidy was too little, consider yourself fortunate! You’ll also be receiving a refund, and minus any taxes you owe.

Take These Steps to Avoid Owing the IRS!

Don’t get stuck with a tax bill for overpaid premium tax credits. By simply reporting changes promptly to Connect for Health Colorado, your premium tax credits will be adjusted accordingly. Here’s what should be reported:

> Any changes in income

> Changes in household size

> Change in marital status

> Your eligibility for insurance through Medicare, Medicaid or an employer

> Change of address

Your Personal Advisor is available to answer any questions you have about premium tax credits. At ColoHealth, we don’t want the IRS walking away with your money – we want you to keep it in your own pocket!

Do you fear you might owe the IRS at tax time? What concerns do you have about premium tax credits?

  Date posted: Monday, October 13th, 2014
Category: Health Care Reform, Health Insurance

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