Obamacare enrollees who received subsidies to help pay for coverage will soon have to reconcile how much they actually earned in 2014 with how much they estimated when they applied many, many months ago.
This will likely lead to some very unhappy Americans. Those who underestimated their income either will receive smaller tax refunds or will owe the IRS money.
That’s because subsidies are actually tax credits and are based on annual income, but folks got their 2014 subsidy before knowing exactly what they’d make in 2014. So you’ll have to reconcile the two with the IRS during the upcoming tax filing season.
It won’t be surprising if many enrollees guessed wrong. The sign up period began in October 2013 and many people did not know what they’d earn in 2014. Some went off what they earned in 2012.
Also, it was up to consumers to report major changes in their circumstances, such as landing a new job or getting married, so their subsidy amounts could be recalculated.
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We’re not talking chump change. Those who applied through the federal exchange received an average monthly subsidy of $264, according to the most recent figures reported by the Obama administration. They only had to pay $82 a month, on average, for coverage, Roughly 85% of total enrollees received help with insurance premiums. The administration last month said 2014 enrollment was 6.7 million.
Those who underestimated their earnings could owe thousands of dollars, though there is a $2,500 cap for those who remain eligible for subsidies. The threshold for eligibility is based on income – $45,900 for an individual and $94,200 for a family in 2014.
Of course, those who overestimated their 2014 income may get a healthier-than-expected refund. And some will see no change.
Here’s what happens next:
Obamacare enrollees should receive Form 1095-A from their exchange by Jan 31. It lists who in the household had policies and how much they received in monthly subsidies.
Taxpayers will then use that documentation to fill out Form 8962, which asks details on insurance, subsidies and income. If they were not covered for the entire year, they have to break down the subsidy payments by month.