Caution When Receiving Health Insurance
Over the years since its enactment, much has been hashed and rehashed about the Patient Protection and Affordable Care Act, i.e., Obamacare, both pro and con. However, in my practice as a CPA and financial consultant, there is one element of Obamacare that can have a significant detrimental financial consequence if the situation is right, but doesn't seem to have gotten the press I feel it should.
It involves the health insurance "Premium Tax Credit" (or PTC), which acts as a subsidy for qualifying taxpayers to help them pay for the mandatory health insurance coverage. This article is a caution for those who opt to receive the advance premium credit to help them cover/lower the premium they pay each month.
For some background, the PTC is available for people with household incomes that range from 100% to 400% of the federal poverty guidelines based on the number of people in your family. For 2018, this means, for example, $12,060 to $48,240 if you are single. For a family of four, the range is $24,600 to $98,400. It is not available for people who get affordable health insurance coverage through their employer or are eligible for Medicare or other federal insurance.
The PTC was set up to take as an income tax credit when filing your income tax returns, thus reducing the income tax you would otherwise owe or giving you a refund. However, that meant having to shell out the full premium each month and then waiting until you can file your return to recoup the credit.
So, to lessen the upfront financial burden, if you qualify for the PTC, when you go to the insurance marketplace to purchase insurance, you have the option of applying your expected PTC (based on your income) against the monthly premium so you pay the expected lower amount.
Certainly, on the surface, the PTC seems like nothing but a positive for those that qualify. However, note that I very intentionally used the word "expected" a couple of times in the preceding paragraph. That is because the ultimate PTC for which you qualify really cannot be determined until the final amount of your income for the year is known, and that will not be known until the year is over.
And that is where the possible trouble comes in; if your income ends up being higher than expected for the year, you may have to give some or all of the PTC back when you file your tax return, i.e., an unexpected tax bill.
I quite literally have seen multiple situations where taxpayers, due to unexpected circumstances (such as a one-time sale of a piece of property they had owned for a long time) owed several thousand dollars in unexpected income tax because the PTC was reduced or entirely eliminated when they filed their returns - YIKES!
So here is where I throw up a huge CAUTION sign ñ if you are buying insurance on an exchange and taking advantage of the advance PTC, to avoid this kind of nasty surprise come tax filing time it is a must that you notify the exchange of life changes to your situation that could affect the amount of your PTC! This would include increases to your income from any source, a change in family size, or even a new job where your employer provides you with coverage.
The exchange can take this information, modify your assistance and possibly help you avoid a serious "oh no" moment. And, lest you think the IRS will never notice, rest assured they are on the lookout, as some recent Tax Court cases indicate.