Premium credits in advance under Obamacare are based on current year not prior year income
If you qualify for a subsidy under Obamacare and take the subsidy as a reduction in your monthly premium, you could be in for a surprise when you file your 2014 taxes. The qualification for a subsidy is determined based upon your current year income but historical information is used to project whether the subsidy is available as a premium reduction.
Buyers who make less than 400% of the poverty line in 2014 may receive a subsidy against their policy premiums purchased under the health care law, but they must let the insurance exchange and their provider know if they have a significant life event. Buyers who encounter a significant life change, such as a new job for either spouse, loss of job, a divorce, raise or promotion could be faced with a surprise when they file their 2014 income taxes next year.
While the surprise could be favorable if the buyers suffer an income setback, both gains and losses in income change the amount of the subsidy resulting in an adjustment to the tax due in 2015.
While subsidies extend to families of four making up to $94,200, many buyers who qualify for what the law calls a “credit in advance” are not taxpayers. The lower income recipients more often receive tax refunds due to child care and other refundable credits. In which case, the reduction of a subsidy will reduced tax refunds.
Our hope is that insurers, the exchanges and the federal government will educate the subsidy recipients about this aspect of the law.