Discussion:Obamacare - credit payback?

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Discussion Forum Index --> Advanced Tax Questions --> Obamacare - credit payback?


Discussion Forum Index --> Tax Questions --> Obamacare - credit payback?

EZTAX (talk|edits) said:

20 November 2013
We have a decent amount of lower income clients in our practice and I am trying to get my head around the questions that we will be asked, and the issues we will be facing, regarding Obamacare this coming tax season.

What I am beginning to worry about are clients that will get subsidized health insurance in 2014 based on their 2013 income. Then, when they file their 2014 tax return, find out they made more money in 2014 and will have to pay the credit back. Am I understanding this correctly? I have not heard anything about it but I wouldn't be surprised if some folks end up owing thousands of dollars if this is the case.

It reminds me of the old advanced earned income credit which we rarely saw. One of the only ones that crossed my desk was a client whose income had gone up during the year and had to pay the credit back.

Thoughts? I am really hoping I am not understanding this correctly!

Laketahoecpa (talk|edits) said:

21 November 2013
Yes - you are correct in your thinking. We've been talking about this very thing for the past few weeks. The monthly subsidy is an advance payment of the Premium Tax Credit. If the Premium Tax Credit that is calculated as part of their 2014 return is less than the sum of their monthly subsidies, they will owe the difference with the tax return. And is appears that it doesn't take that much of a swing in income to go from qualifying for some level of subsidy and not qualifying for any subsidy.

But I believe this works the other way also. If someone earns less than anticipated for 2014, the difference between monthly subsidy they received and their 2014 Premium Tax Credit will be refunded on their return.

WEISSEA (talk|edits) said:

21 November 2013
"Am I understanding this correctly?"

Yes, the advanced subsidy(credit)is based on estimated 2014 income. When the 2014 income tax return is filed , the amount is reconciled with the tax credit received based on the actual household income for the year.If 2014 income is incorrectly estimated, the taxpayer maybe entitled to a larger credit, and will get that money back. If qualified for a smaller or no credit, taxpayer may have to pay back some or all of the credit. Households with a final income over 400% of FPL will be required to pay back the entire premium subsidy amount. For those households with incomes under 400% of FPL, repayments will be capped at certain limits which have been changed twice since ACA enactment.

If the taxpayer doesn't like the possibility of having to pay back money at the end of the year, the taxpayer can pay the entire premium during the year. That way, the taxpayer if entitled to one, would receive the entire credit as a refund when the 2014 income tax return is filed.

See CRS 7-31-13 on ACA Premium credits for details.

EZTAX (talk|edits) said:

21 November 2013
Thanks for the confirmations. That is a lot to think about and plan for.

At the seminar I attended on the subject, the presenter did say it was based on a month to month basis. So if client is unemployed for 6 months and then gets a good job, they are eligible for the credit for the first 6 months.

EatonCPA (talk|edits) said:

21 November 2013
I'm taking a webinar on HCR right now. The repayments of excess premium subsidies are capped - single $1,250 and family, $2,500 per year. So even if the overpaid premium subsidy is $3,000 for an individual, they only have to repay $1,250.

EZTAX (talk|edits) said:

21 November 2013
Wow. Great info Eaton, I had not heard that before.

Laketahoecpa (talk|edits) said:

21 November 2013
The repayment of excess premium subsidies are capped IF the taxpayer's actual modified AGI as reported on 2014 return falls somewhere between 100 - 400% of FPL. If modified AGI > 400% FPL then repayment not capped. See ยง36B(f)(2).

EZTAX (talk|edits) said:

23 November 2013
Laketahoe - this sounds like a "cliff" type limit yes? If so then there will probably be cases where a contribution to an IRA account can really make a large difference since the IRA reduces the AGI used to determine the credit.

Yellowdog (talk|edits) said:

7 March 2014
Should that be 36(f)(2)(B)(i)? I have heard in our area, insurance agents are signing people up and calculating a subsidy even though anticipated 2014 income is over 400% fpl. They are telling the insured the max they will have to repay is $2500, so they will come out better in the end any way even if they don't qualify for the premium tax credit.

I am reading this section the same as Laketahoe. Over 400% fpl and the entire subsidy has to be repaid. Where am I misunderstanding?

Jake (talk|edits) said:

11 March 2014
Interesting to see this is a month by month Basis. My son hasn't had a full time job in 4 years. Got Obamacare Jan. 1. Just got a good job March 1st.

STG (talk|edits) said:

11 March 2014
Jake - have them inform the exchange!

I love the fact that there is no way to collect the penalty, other than withholding from a refund. No levies, no garnishment, no liens. So, make sure you owe every year, and they can never make you pay the penalty!

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