I signed up for Covered California when I was under-employed early in 2014 and my income was very low. I got a nearly full-time job in July 2014 which increased by income significantly and offered insurance beginning in October. I cancelled my Covered California insurance in October when my employer insurance started. My tax preparer tells me I now owe the government over $4,300 dollars – or every dime of the subsidy I received early in the year when I my income was much lower. My adjusted gross income for the year was still only $28,000. This seems extremely unfair. I was not warned about this, and needed the subsidized insurance until my new job started. How could I know I would get a job? Is there anyway this can be reduced or forgiven?
ACA subsidies are based on annual income, that means if you need assistance for part of the year you can end up owing credits if income increases later in the year. On the flip side, if you make less than projected you can actually end up getting a bigger refund or not owing anything.
Let's say you start the year out without work, but project you will find a job and make at least 100% of the Federal Poverty Level (FPL). You can project your income at 100% FPL and get cost assistance accordingly. Now half way through the year you get an upper-management position that pays $100,000 a year. Even 6 months of that pay is going to ensure you no longer qualified for credits (for the whole year, not just moving forward) are repaying the full tax-credit amount (repayment limits are based on income). In cases where you needed tax credits at one point in the year, and not at another, you may owe back tax credits. This is why we suggest taking only the tax credit one needs up-front, we also suggest people look at this like a "loan" of sorts. You got fronted the money to get insurance when you didn't have it, but your income at the end of the year didn't actually qualify you so you are expected to pay it back when you file your taxes.