Why do You have to Pay Back Subsidies?
We used Obama care for the first 8 months of the year and then my wife got a job and we used her insurance instead. My accountant says that now we owe money back because we made too much. Why should it matter what my wife made the last 4 months of the year because it had nothing to do with Obamacare. Shouldn’t it be based on what we earned the first 8 months because that was when we were using it?
Your cost assistance is based on your projected Modified Gross Adjusted Income (MAGI) for the entire year. If you accept health insurance subsidies from the federal government based on your estimation of what your MAGI will be but end up making more than reported, you will have to pay back part or all of the subsidies you received.
I think that there is a flaw in this subsidy system. First of all let’s make sure you do not call it a charity, but rather a tax loan that we must pay back if we make too much.
Unfortunately for me, as a waitress and working a second job without set hours which were variable, I had no way of knowing what I would make, so I guessed based on my previous year. It turns out I do not qualify for a subsidy now which means I will probably pay all my subsidies back, but here’s the problem. Paying all my subsidies back plus what I spent on insurance out of pocket, exceeds what you define as afforable for me, so I could have rejected insurance and been exempt from paying for it, but because I tried, I am being penalized. Not to mention I got screwed from not having enough wages as a waitress withhold sufficient fed income tax, so I am looking at a roughly 3300 tax bill included the subsidy payback. And it’s insurance that only benefited me with check ups. A surgery I had to have was much cheaper going out of network as a self pay patient with a 60% discount. Had I gone through insurance I would have paid much more with the insurance.
The system is broken and recent graduates like myself who are burdened with debt from school and working two jobs to make ends meet don’t deserve to be ass raped from the government for trying. I will be appealing to only pay what you define as afforable for my income and no more.
If you don’t know how much you will make, i’d advise still using the Marketplace but taking less upfront credits. This avoids the problem, also using an HSA and taking other deductions to stay under the 400% line can help. If you overshoot the line by too much you have to pay back “the loan” (AKA upfront tax credits). I have yet to meet a person happy about paying back the credits, but I think it’s hard to argue that paying back money you don’t qualify for isn’t fair.
For me I am concerned that I underestimated my income, although I will most probably still qualify for a subsidy. So what this answer doesn’t address is how the amount of a pay back is determined – what is the magnitude of a penalty (or payback) for getting it wrong? Is it a sliding scale, or are there income points where the subsidy is adjusted up or down? If I’m off by $5k, at $24k instead of my stated $19k for my estimated MAGI, how much is my subsidy affected? What might my payback be?
This page explains it: https://obamacarefacts.com/advanced-tax-credit-repayment-limits/
You can either update the marketplace or you can adjust this at tax time (paying what you owe up to the repayment limit or requesting more money back if you paid too much).
The Generalized Answer is fine, but the links lead inaccurate/outdated info, especially: https://obamacarefacts.com/modified-adjusted-gross-income-magi/
which, unfortunately, although noted as having been updated in Feb 21, 2019 (today)
is out of date.
AGI is on line 7 of the 2018 form 1040
Taxable income is on line 10
Lines 20a & 20b do NOT pertain to Soc Sec benefits. (that is now on line 5a and b)
similarly the reference to Interest Income (taxable or not) is no longer on line 8. it is now on lines 2a and 2b.
foreign earned income is no longer directly reported on form 1040 at all.
working for H&R Block I’ve already gotten 2 inquiries from people who are very confused when they try to research their own issues with the ACA and their tax issues. please make further corrections.
the 1040EZ no longer EXISTS.
Thank you so much for the feedback! I’ll make sure the page is updated. This was a challenging year for us due to the changes to the tax law and the ACA paired with some search engine updates which drastically reduced our traffic (sort of perfect storm that created more work for us but less income to hire people to help with the work). In short, very glad to have your help!
I retired and took out my 457 retirement money I only made 45000$ in 2018 and because I took out the 457 money , it shows I made 73000$ for the year and not I have to pay 19000$ back in subsidies. I am retired and am fixed imcome. I make 48000$ for next year. do I have to pay all of the money back?
So this can happen, if you took a lot of money in advanced tax credits and then took out a lump sum payment like from a taxable retirement account, then your taxable income can go above the limit and require you to pay back all the credits you took. https://obamacarefacts.com/advanced-tax-credit-repayment-limits/
The result is that you end up paying the full price of your plan. Sure, that is fair on some level, but it does not feel good. If you think there was an error, you can always seen an accountant for help.
Unfortunately there hasn’t been amazing communication with some people. Obviously most of us would wait to cash out our 401k if we knew we would lose all our tax credit assistance!
As for your current income, you are right on the line, so you have to be careful with taking income. You essentially have NO wiggle room. You take $1k out of your retirement account or take a side job, and you wont’ qualify for assistance! https://obamacarefacts.com/federal-poverty-level/
The same thing happened to me. I was laid off from my job in September a few years ago, at age 63. My company closed. I have always worked and had health insurance thru my employer or my husband’s employer.
I was afraid not to have insurance and getting penalized for not having insurance.
I went to the health exchange and purchased a subsidized policy. Not knowing what the future would bring with employment opportunities. No one told me about the fact I would have to pay back the subsidies when I purchased the policy. I never used a dollar of benefits the few months I was insured. The insurance companies were the recipients of the subsidy money, why are they not paying back the subsidies?
It is because of the way that premium assistance is actually advanced tax credits to you from the government, but yeah, there is some logic in what you say for sure.
my mother had a subsidy on her house she passed away in oct 2019 me and two of my sisters finished paying off the principal now there is 24,842.00 dollars owed on subsidy what do we need to do
This page is about health insurance subsidies, I believe you are talking about federal mortgage subsidies. Here is some information on that. https://taxmap.irs.gov/taxmap2013/pubs/p523-008.htm