Subsidy Reconcilliation

[Tax Prep by Deb]

Hey guys and gals,

 

I've had several clients who received subsidies thru the health care exchange.  When I do form 8962 every single client owes back the credit.  3 of the 4 of done I can clearly see why.  There income is more than it was the previous year which is what they used to determine income.

 

One however is only 300 dollars more.  It's an older couple.  Husband receives ssa disability and third party sick pay and is covered thru his former employer.  His wife is covered under Covered California and received an advance credit towards her insurance.  When I got the form and did the reconciliation I really expected that they would be exactly were they needed to be, or perhaps owe a little.  Instead it turns out they owe over 700.  She had exactly the same plan all year Jan-Dec and the costs, and the advance credit remained the same.  When I prepared their tax return literally the only thing that changed was a small cost of living increase in her husbands ssa disability payment.

 

Have any of your clients broke even?  Has any gotten more credit?  Or is this thing rigged to cause people to owe at the end of the year?

[rfassett]

The one that I have done so far, the client owed $5 back.  I doubt you can get much closer that that.

[Tax Prep by Deb]

I don't know if it's a problem with Covered California Health Exchange or what.  I manually did it and came to the same result as ATX did, but it does not make since that they should have to pay that much back.  The other cases I can clearly see.  Their income was much higher, but these guys are on a fixed income, only change from year to year is bump up in social security.

[MsTabbyKats]

I only did one for NY....she had to "pay back" about $300.

 

Her income was just about the same.

 

I haven't really analyzed "why" yet.

[jklcpa]

I don't think it is "rigged" at all.

 

When this couple filled out the application on the CA exchange, did they perhaps use AGI without including the nontaxable portion of the SSA or could they have underestimated their income on that application in some other way?  Do you have a copy of that to know for sure what they did?

 

It is possible for people to take too much APTC that could have this kind of payback. For someone in the 300-400% of FPL range, for every $1000 of income that wasn't anticipated or included when the insurance application was submitted last year, that has the potential to add an additional $95 to the taxpayer's monthly contribution toward health care premiums that they can pay themselves, and would reduce the amounts on the 8962, part 2, col c by that amount.  There's also the limitation in col E that compares the premiums of the actual plan chosen to that of the lowest silver after the taxpayer's contribution, but I see that as a less likely limitation for people to be subject to that where the income changed.

[Jack from Ohio]

The issue arose from the clients not accurately estimating income when they applied for insurance on the marketplace.  We have has several.  The client will change numbers to get a larger subsidy, not paying any attention to the warning about reconciling on the tax return.

 

People do not read, do not pay attention, and only care about what they can change to make the numbers in their favor.  Every one of ours with Marketplace insurance have been that way.  This payback WILL be enforced by the IRS.  Not like the Shared Responsibility Payments that cannot be enforced.

[joanmcq]

The only one I've done so far got a credit because they overestimated their income. He got sick and ended up only working half the year..