December 2, 2022
  • December 2, 2022

How to Avoid a Tax Surprise from Marketplace Health Coverage

By on July 22, 2022 0

Kateryna Onyshchuk | iStock | Getty Images

If your income is much higher this year than expected, this is probably a welcome change.

However, for anyone getting their private health insurance in the public market, that extra cash could mean an unexpected tax bill when preparing their 2022 return next spring. A mid-year income check could help avoid this.

Basically, if you receive premium subsidies (technically, advance tax credits) in the market, having an annual income higher than what you estimated when you registered could mean that you are not entitled to as many benefits. help you receive. And any excess will have to be repaid at tax time.

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Report changes that may affect insurance subsidies

“You should really get into [your account] and take the necessary steps to change your estimate so they can revise the grants as soon as possible,” said Kristin Esposito, director of tax policy and advocacy at the American Institute of CPAs.

Esposito said a drop in income should also be reported, which could allow you to get larger monthly grants. Make sure your account also reflects other life changes, including marriage or a new member of your household, which may also impact the amount of assistance.

“Many circumstances can change and affect your insurance coverage,” said Cynthia Cox, vice president of the Kaiser Family Foundation and director of its Affordable Care Act program.

Changing your information usually involves calling the exchange or going to your online account and updating your application (or calling the exchange). If you used an insurance agent or broker to sign up, or got help from a community organization, you should be able to get help from them as well.

Income cap changes could reduce tax surprises

About 89% (12.9 million) of the 14.5 million people enrolled in private health insurance in the public market – which was authorized by the Affordable Care Act of 2010 – receive subsidies. Generally speaking, people who receive coverage in this way – either through or interchange of their state – are those who cannot get insurance from work or are not eligible for Medicaid or Medicare.

Grants through the exchange have been expanded for 2021 and 2022 due to the American Rescue Plan Act of 2021. (Senate Democrats are trying to extend the current two-year expansion, though it’s still unclear if that will happen.)

It’s always important to report a change in income to avoid any kind of surprise, but hopefully the worst kinds of surprises don’t happen as much this year.

Cynthia Cox

Kaiser Family Foundation and director of its Affordable Care Act program

Prior to the temporary extension, support was generally available to households with an income between 100% and 400% of federal poverty line.

The earnings cap has been removed for 2021 and 2022, and the amount anyone pays in premiums is currently limited to 8.5% of their earnings, as calculated by the exchange.

The temporary removal of the income cap means there may not be as many cases where people have to repay all their subsidies: before, if someone estimated their income was 399% of poverty but If it was 401%, he would have to account for those grants on their tax return.

“It’s always important to report a change in income to avoid any kind of surprises, but hopefully the worst kinds of surprises don’t happen as much this year,” Cox said.

Review key tax forms next spring

When you start receiving tax forms in early 2023 (for example, your W-2 or 1099 forms due to interest or dividend income), one of them will usually be a market 1095-A form. insurance, which details the amount you received each month in tax credits.

This document is then used to complete Form 8962, which indicates whether you received the correct amount of grants – and if not, what surplus or deficit is,” Esposito said.

Any amount you are not entitled to would reduce your refund or increase the amount of tax you owe. Similarly, if you are entitled to more than you received, the difference will increase your refund or reduce the amount of tax you owe.