WASHINGTON — Millions of people who take advantage of government subsidies to help buy health insurance next year could get stung by surprise tax bills if they don’t accurately project their income.
- Health care providers, advocates and tax experts say the vast majority of Americans know very little about the new health care law, let alone the kind of detailed information many will need to navigate its system of subsidies and penalties.
- The Patient Protection and Affordable Care Act (PPACA) will offer subsidies — advanced premium tax credits (APTC) — to help people buy private health insurance on state-based exchanges, if they don’t already get coverage through their employers. The subsidies are based on income. The lower your income, the bigger the subsidy.
- The vast majority of taxpayers won’t actually receive the subsidies. Instead, the money will be paid directly to insurance companies and consumers will get the benefit in reduced premiums.
- But the government doesn’t know how much money you’re going to make next year. And when you apply for the APTC subsidy, this fall, it won’t even know how much you’re making this year. So, unless you tell the government otherwise, it will rely on the best information it has: your 2012 tax return, filed this spring.
- What happens if you or your spouse gets a raise and your family income goes up in 2014? You could end up with a bigger subsidy than you are entitled to. If that happens, the law says you have to pay back at least part of the money when you file your tax return in the spring of 2015. That could result in smaller tax refunds or surprise tax bills for millions of middle-income families.
- A draft of the application for insurance asks people to project their 2014 income if their current income is not steady or if they expect it to change. The application runs 15 pages for a three-person family, but nowhere does it warn people that they may have to repay part of the subsidy if their income increases.
- The subsidies, which are technically tax credits because they are administered through the tax code, will help low- and middle-income families buy health insurance through the state-based exchanges.
- The subsidies are available to families with incomes up to 400 percent of the poverty level. This year, four times the poverty level is about $62,000 for a two-person family. For a family of four, it’s $94,200.
- If families get bigger subsidies than they are entitled to under the law, the amount they have to repay is capped, based on income and family size. If they get less than they qualify for under the law, the government will pay them the difference in the form of a tax refund.
- “It’s potentially going to come as a shock to individuals who meet that criteria where their income hits a point where they owe money back,” said Rep. Charles Boustany, R-La., chairman of the House Ways and Means oversight subcommittee. “The fact is, with variations in income, people could end up owing money back and that will create consternation and problems for them.”
There are four thresholds for repaying the subsidies:
- A family of four making less than $47,000 would have to repay a maximum of $600.
- If the same family makes between $47,000 and $70,000, the amount they have to repay is capped at $1,500.
- If the same family makes between $70,000 and $94,200, the amount is capped at $2,500.
- Families making more than four times the poverty level have to repay the entire subsidy.
*Modified from a LifeHealthPro.com article