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Have you been getting a health insurance subsidy this year?

November 9th, 2014 at 12:57 pm

Some interesting things to know if you are one of the people who, like me, is buying their own insurance from the healthcare exchanges and receiving an advance subsidy from the government to help pay for it:

1. If you received a subsidy this year that was directly paid to your insurance company, you MUST have your return filed by April 15th. No extensions--not even if you are missing crucial information like K-1s from partnerships etc. Your preparer will have to make a good faith estimate, note the number under question in a statement attached to the return, and file an amended return if needed. The IRS needs the return in order to calculate whether you received too much subsidy and need to return the advance payments, or whether you received too little and get a refund.

2. This January (or actually, for 2015, February 2) and every year henceforward, you (EVERYONE, not just people buying care off the exchanges) will receive a new tax information form to be brought to your return preparer with information about your health insurance. Most of these forms are numbered 1095 with a letter indicating whether the insurance was purchased through your employer or from other sources. Your preparer cannot file your tax return until you have your information form, so tax season will be delayed and abbreviated this season. Expect very harried tax preparers especially as tax season progresses. Also because of the additional work required to reconcile the information, potentially up to an additional hour per return, especially if your insurance changed during the year or if you had a coverage gap during the year, expect tax return costs to go up this year. On the other hand, you are much more likely to be able to avoid or minimize penalties if you are using a qualified tax preparer--and especially if you have a tax planning meeting before year end--so the value provided in return for the fee only increases. But if you are focused only on the cost, it will probably go up more than usual this year.

3. If your income changed during the year in any substantial way from the way you estimated it last year when signing up on the exchange, you should have gone on to healthcare.gov or your state exchange and updated your information during the year. Especially if your income went up substantially, you could lose the subsidy and have to repay it--even if your modified AGI was just one dollar over the limit for your filing status.

4. If you chose to remain uninsured this year, you will owe a penalty. The MINIMUM penalties rates are relatively low this year (the $95 Single minimum penalty number has been much bandied about) and will rise steeply over the course of the next two years, but if your income was a middle class income and you went uninsured, your penalty could be quite steep--up to 1% of income this year (going up to 2.5% by 2016), and capped for this year at $9800 (the national average price of a bronze plan for a family). Some taxpayers are going to be in for a nasty surprise.

5. Now here is something that I heard from a trustworthy source but which I find a little bit unbelievable, so take this with a grain of salt until I can find the IRS Regulation that governs it or else get my 2015 software installed and see it for myself: according to the lawyer who taught our update class, if you owe a penalty and have a balance due on your tax return, as opposed to a refund, you will not be assessed an extra payment for the penalty--they will be taking the penalty payments from tax refunds and will just wait until you have a tax refund year and take the money then. Again, I need to see this in writing before I believe it. UPDATE: Apparently, it's better to say that you WILL be assessed the penalty but they won't go after you if you fail to pay it and have a balance due. They'll just wait until you do have a tax refund year and grab the penalty then. Interest and penalties will continue to accrue until the penalty is paid. I still need to find the discussion of this in the Regs--I do like to be able to cite my sources.

6. The subsidies are now under Supreme Court challenge for those of us who receive the subsidy from Healthcare.gov, as opposed to from a state exchange. The Supreme Court on Friday accepted the King v. Burwell case, which challenges the legitimacy of subsidies received from the federal as opposed to the state exchange, since the governing law refers to "State" subsidies. Two different Circuit Courts decided differently on this issue, hence the Supreme Court acceptance of the challenge. TBD by June-yet another way the Right is trying to make the Affordable Care Act go away. Two-thirds of people would lose their subsidies if the word "State" is interpreted in the narrow rather than in the broad sense, making insurance unaffordable for them and effectively undermining the law.

16 Responses to “Have you been getting a health insurance subsidy this year? ”

  1. creditcardfree Says:

    I have heard #5 as well. So, one way to avoid the penalty for not having health insurance is to make it so you owe taxes.

    So if we have insurance because of military insurance, we will be getting a new form that needs to be reported on 2014 filing?

  2. Dido Says:

    I believe that every taxpayer who has insurance will be getting some
    kind of form...there's 1095-A, B, and C, and then another form with
    the number beginning with "8" that I think might be for insurance
    received from various government sources.

    Be careful about using the word "avoid" with regard to tax....the
    penalty would be *deferred* for the current year, not "avoided," If
    you ever forget and have a balance due, the government would come in
    and grab it. But thanks for reporting that you had heard this as well!

  3. creditcardfree Says:

    Well, technically it could be avoided long term, but I do understand what you mean by deferred!

  4. patientsaver Says:

    Interesting info, especially that any tax penalties associated with a subsidy payback will come out of refunds only.

    That's probably what will happen with me then. I had Obamacare for just 3 months, and then hopped onto an employment agency's plan as soon as I could since it was cheaper. Unfortunately, the very nice insurance agent I met with prior to that recommended I go with a gold plan, so the subsidy was $400 a month!

    At the time, I was projecting a gross income under $46,000 since my contract job was due to end last summer, and I was making less money on an hourly basis. But then the bank offered me a perm position after I'd been working as a contractor for about 6 months.

    I knew my income situation could go either way, but I decided to err on the side of assuming I wouldn't get the perm position (so many others slipped thru my fingers), and I wound up making the wrong choice.

    So I will owe $1200, unfortunately, and I imagine that will wipe out whatever refund I might otherwise get for 2014. Oh well. Frown

  5. Dido Says:

    Too bad....hopefully knowing about the lack of refund this far in advance will make the pain a little less bad later on when you actually file.

  6. doingitallwrong Says:

    It's not that you won't be assessed the penalty amount if you have a balance due on your return -- that amount will be added to your tax due -- but if you don't pay the penalty amount, the only thing the IRS can do (other than send you letters) is take it from a future refund. The law does not allow the IRS to impose a lien or levy to recover individual shared responsibility payments.

  7. doingitallwrong Says:

    I am not sure if they can impose penalties and interest to past-due ISRPs....

  8. Dido Says:

    doingitallwrong, thanks for that clarification!

  9. doingitallwrong Says:

    Spoke too soon. Smile They can impose penalties and interest just as with any other past-due tax payment. Again, they cannot impose a lien or levy, nor can they pursue criminal action or penalties for failure to pay the ISRP.

  10. Dido Says:

    Thanks. Do you have a source? Is it in the May 2012 Reg? If you don't know, don't bother digging for it...I can do that too.

  11. Dido Says:

    And if the penalities and interest continue to accrue, I wish that the lawyer had made that clear!

  12. patientsaver Says:

    The law seems a little unfair to the thousands of people who depend on contract jobs, because whether or not they get a possible extension, or the job ends, or the job goes perm, is entirely out of their control.

    I suppose in a way if the irs only takes the payback amount out of my refund, it could make it easier to handle if they have to spread out collecting the full amount over 2 or 3 years, based on my refund amount. Which is usually $500 to $900.

  13. Dido Says:

    Patientsaver, see the discussion above about IRS interest and penalities that may accrue if you don't pay the full balance due. I need to find the Regulation that governs this to be able to cite chapter and verse, but that the feeling I had when I first posted, that what our instructor taught us about not having to pony up this year if you had a balance due on the return was too good to be true.

  14. doingitallwrong Says:

    It's addressed in a few spots on the IRS website, and the IRS' final regulations (August 2013) § 1.5000A–5 (Administration and procedure) discusses the inability to impose a lein or levy or bring criminal charges, and notes that "The shared responsibility payment is payable upon notice and demand by the Secretary, and except as provided in paragraph (b) of this section [levy/lien/etc], is assessed and collected in the same manner as an assessable penalty under subchapter B of chapter 68 of the Internal Revenue Code. The shared responsibility payment is not subject to deficiency procedures of subchapter B of chapter 63 of the Internal Revenue Code. Interest on this payment accrues in accordance with the rules in section 6601."

    http://tinyurl.com/ko3d8tp

    Also the Internal Revenue Code, Subtitle D, Chapter 48, §5000A (b)(2) states that "Any penalty imposed by this section with respect to any month shall be included with a taxpayer’s return under chapter 1 for the taxable year which includes such month."

    http://www.law.cornell.edu/uscode/text/26/5000A

    Smile

  15. Dido Says:

    doingitallwrong, thanks so much for the code & regs!

  16. LittleMissSplendid Says:

    Question about #2....

    Since I had health insurance through my employer for 2014, will I just get that 1095 form from them when I get my W2? And if I'm doing my taxes myself there won't be a delay as long as I make sure I have the 1095 when filing right?

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