How to avoid marketplace health insurance tax surprises

How to avoid marketplace health insurance tax surprises

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If your income is much higher than expected this year, it’s probably welcome.

For anyone who gets their private health insurance through the public marketplace, that extra money could mean a windfall in their tax bill when they file their 2022 return next spring. A mid-year income check can help prevent this.

Basically, if you’re getting premium subsidies (technically tax credits) through the marketplace, having an annual income that’s higher than you projected when you signed up could mean you’re not eligible for as much help as you could. And any excess should be repaid at tax time.

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Report any changes that may affect insurance benefits

“You really should go inside [your account] and take steps to change your assessment so they can review the allowances as soon as possible,” said Kristin Esposito, director of tax policy and advocacy for the American Institute of CPAs.

Esposito said a drop in income should also be reported, which could lead to a higher monthly allowance. Make sure your account also reflects other life changes, including marriage or a new household member, which may also affect the amount of assistance.

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

Changing information generally involves calling the exchange or going to your online account and updating your statement (or calling the exchange). If you used an insurance agent or broker to sign up, or were assisted by a community organization, you should also get help from them.

Changing the income limit can reduce tax surprises

About 89% (12.9 million) of the 14.5 million people enrolled in private health insurance through the public marketplace — which was authorized by the Affordable Care Act of 2010 — receive subsidies. Generally, the people who get coverage this way—either through healthcare.gov or their state’s exchange—are those who don’t get workplace insurance or who don’t qualify for Medicaid or Medicare.

Subsidies through the exchange were expanded for 2021 and 2022 as a result of the Saving America Act of 2021. (Senate Democrats are trying to extend the current extension for another two years, though it’s not yet certain whether that will happen.)

It’s still important to report the change in income to avoid any surprises, but hopefully the worst surprises won’t happen this year.

Cynthia Cox

Kaiser Family Foundation and head of the Affordable Care Act

Before the temporary expansion, assistance was generally available to households with incomes between 100% and 400% of the federal poverty level.

In 2021 and 2022, the income cap was abolished, and the amount of insurance premiums is now limited to 8.5% of his income, as calculated by the exchange.

The temporary removal of the income limit means that there may not be as many cases where people have to pay back all their benefits: if someone thought their income was 399% of poverty but ended up being 401%, they would have had to account for those benefits on their tax return .

“It’s still important to report the change in income to avoid any surprises, but hopefully the worst surprises won’t happen this year,” Cox said.

Next spring, review the main tax forms

If you start getting tax forms in early 2023 (like your W-2s or 1099s because of interest or dividend income), one of them will usually be an insurance market Form 1095-A that details how much you’ll pay. received a tax credit every month.

That document is then used to fill out Form 8962, which shows whether you received the correct amount in subsidies — and if not, what the excess or shortfall is, Esposito said.

Any amount you missed would reduce your refund or increase the amount of tax you owe. Also, if you are entitled to more than you received, the difference will increase your refund or reduce the amount of tax you owe.

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