If you’re counting on your tax refund and you’re getting tax credits to subsidize your health insurance premiums thanks to Obamacare, it’s important to understand how changes in household income may affect your refund.
Spoiler alert: If your income for 2014 is more than the estimate you gave when you applied for health insurance, your next year’s tax refund can be reduced or even eliminated.
Maybe you’ve got a higher-paying job or your spouse got a raise – you may be looking at a shock when it comes to tax time – as your income increases, you don’t qualify for as much of a tax credit. Any taxes owed will come out of your tax refund, unless you have promptly reported the changes.
The tax credits are available to individuals with household incomes between 100 and 400 percent of the federal poverty level, after considering such factors as income, family size, where you live and the premiums for a “benchmark” plan in your community. Nearly 7 million households have received subsidies.
Worry about the confusing connection between Obamacare and taxes has increased recently, after the Internal Revenue Service released drafts of more new forms to handle health insurance tax credits come the 2014 filing season.
Tax professionals suggest consumers whose incomes increased during the year should contact HealthCare.gov or their state insurance exchange to update their accounts now. Although their health insurance premiums will be higher for the rest of the year, they can lessen the financial hit during tax time.
Things you should know:
- Taxpayers who received health insurance tax credits this year can’t file a simplified 1040EZ.
- IRS cannot use liens and levies to collect the law’s penalty on uninsured people.
- There is no limitation on collection efforts in cases where consumers got too big a tax credit.
- If your refund isn’t large enough to cover the repayment, you will have to write the IRS a check.
- The repayment amount the IRS can collect is capped for most people.
- For individuals making less than $22,980 the IRS can only collect up to $300.
- For individuals making between $22,980 and $34,470 the IRS can collect up to $750.
- For individuals making between $34,470 and $45,960, the cap is $1,250.
- For families, the cap is double the amount that individuals can be charged
- income thresholds vary according to household size.
- For households making more than four times the federal poverty level there is no collection cap – they are liable for the entire amount of the tax credit they received.
- Income thresholds:
- $45,960 and above for an individual.
- $78,120 and above for a family of three.
- $94,200 for a family of four.
- If your income was overestimated and you didn’t get a large enough health care tax credit, the IRS will increase your refund.
- The average tax credit for subsidized coverage on the new health insurance exchanges is $264 a month, or $3,168 for a full 12 months.
- The average tax refund is about $2,690.
Have you taken advantage of subsidized health insurance? Now is a good time to get a free quote.
Do you think Obamacare is working? Feel free to share your thoughts in the comments section below.