Subsidy Repayment for Total Income, Not Just Months I Got Assistance?
I have been trying to sort out an issue relating to my taxes. I had Obamacare from January 2014 to July 2014. During that time my pay-rate corresponded to the subsidy that I was getting for my coverage. In July 2014 I cancelled my Obamacare plan because I became eligible to receive benefits from my employer along with a pay-rate increase. When I put my 1099-A form into my tax software for the 2014 tax year it calculated that I owed $700 for discrepancies in my subsidy. It is evident that this is happening because it is comparing my subsidy to my year end income, not my income while I had Obamacare from January to July (I have pay-stubs to back this up). I filed a tax extension because I wanted to sort out this issue (I am about to go to grad school, move, and get married, so $700 is quite dear to me). How can I have my subsidy evaluated against my income when I had the policy during the first half of the year, not my total income for the year.
Answer
When you get tax credits you get them based on projected total income after deductions for the year (technically Modified Adjusted Gross Income or MAGI). In other words even if you had coverage for 11 months of the year and got tax credits based on income for those months, if you suddenly at the end of the year got $100,000 you would then owe back all of the tax credits you got throughout the year. This is part of the reason the ACA allows you to take advanced tax credits in part or in whole in retrospect on form 8962 at the end of the year. It avoids that not-so-fuzzy feeling of having to pay back advanced tax credits. Unfortunately this most likely means that you do owe back $700 (that was $700 fronted to you in tax credits based off your projected income, that income changed, now you owe part of the difference). As a consolation, you only owe back $700 (that is not the limit of owing back ALL advanced credits).
The only option you have to maybe ease the burden a little is to look at deductions. If you can find some extra deductions to lower your MAGI you may be able to reach the next Federal Poverty Level threshold where you will owe back less tax credits.
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I had no insurance in January but has Medicare for the other 22. How do I report the short term gap on 1040a?
Medicare is an insurance. So if you hold a Medicare policy or individual policy for at least one month in a day you have coverage. You would claim the short coverage gap exemption for up-to two full months you went without coverage.
I have a similar issue. Our income (married filing joint) changed toward the end of the year. Now we owe back all of the tax credits. At the time we could not afford to pay $1200 in Health insurance so we took the full subsidy (hindsight not helping that situation). My question is:
since we technically did not get a subsidy as we are paying it all back, can we now take the deduction for health insurance premium as part of our health care costs that need to total 10% of our income so we can deduct it as part of our medical expenses??