Tom received unemployment insurance in 2021. Because of the unemployment insurance, Tom’s household income is 133 percent of the federal poverty level, regardless of his income. That 133 percent of the federal poverty level translates into $0 annual contribution for the second lowest cost Silver plan. Since the second lowest cost Silver plan premiums equaled $15,000 for the year that amount becomes the maximum subsidy allowed. Tom is eligible for an additional $2,318.40 ($15,000 – $12,681.40) in Premium Tax Credit because of the unemployment insurance benefit.
Posts related to calculating the Premium Tax Credit received through Covered California, subsidy, form 8962, MAGI household income.
In this example, the annual amount of the SLCSP is $15,000. The consumer fair share dollar amount of $8,500 is subtracted from the $15,000 to yield a Premium Tax Credit amount of $6,500. The difference of $6,500 is divided by 12 to get a monthly Advance Premium Tax Credit subsidy of $541.67 per month.
Taxpayers who have already filed their 2020 tax return and who have excess APTC for 2020 do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess APTC repayment amount to zero with no further action needed by the taxpayer. The IRS will reimburse people who have already repaid any excess advance Premium Tax Credit on their 2020 tax return.
The household contribution percentages progressively increase until they reach 8.5 percent when the Modified Adjusted Gross Income is at 400 percent of the FPL. There is no cap on the household income in order to receive the federal Premium Tax Credit subsidy. As long as the Second Lowest Cost Silver Plan exceeds 8.5 percent of the household income, there will be a subsidy to lower the cost.
The American Rescue Plan is federal legislation that applies to federal Premium Tax Credits. It does not apply to any repayment suspension or forgiveness of the California subsidy. One odd twist is that some consumers may have a higher MAGI, over 400 percent of FPL, and not have to repay the federal subsidy and also pick up the California Premium Assistance subsidy on their California income tax return.
For example, if the annual cost of the SLCSP is $6,200 and 8.5 percent of your household income is $5,000, then the subsidy is $1,200. When divided by twelve months, that would be $100 per month to lower the cost of any health plan offered to you through Covered California. If 8.5 percent of your household income $7,000, and the SLCSP is $6,200, there is no subsidy.
The 56-year-old San Mateo County resident purchased health insurance through Covered California in 2020 and 2021. The estimated income was $45,000. In 2020, after the Covered California subsidy, the individual paid $109.98 per month for the Kaiser Silver 70 plan. In 2021, the Kaiser Silver plan jumped to $285.71, a 160 percent increase over the prior year.
In scenario III, the income situation is reversed. The couple estimated a MAGI of $25,000, but ended up with a final MAGI of $55,000. However, they don’t have to repay all of the $4,375 excess federal Premium Tax Credit they received from the federal government because there is a repayment limitation. In their case, they only have to repay $2,700. The higher income puts the couple into the California subsidy income zone and they get to claim a $376 tax credit on their California income tax return.
The starting point for the subsidy calculation is also the end point for reconciling the subsidy on the California 540 income tax return. First, your Modified Adjusted Gross Income (MAGI) is converted into a percentage of the federal poverty level (FPL), which varies by household size. That FPL percentage is then matched to the Applicable Figure. The Applicable Figure is itself a percentage, the percentage of the household’s fair share or consumer responsibility for health insurance. It is a sliding scale with income closer to the FPL being responsible for less of the health insurance premium.
Unfortunately, many of us don’t fully factor in the costs of doing business when we think of our monthly income stream. Consequently, many small self-employed individuals may have applied and received unemployment benefits greater than the actual net taxable income received during normal business operations.