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.
Posts related to calculating the Premium Tax Credit received through Covered California, subsidy, form 8962, MAGI household income.
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.
The Applicable Figure is multiplied by the MAGI. The results on Line 8a (45,000 x .0877) is $3,947, rounded up. Under the ACA, the Purmt’s should pay no more than $3,947 or $329 per month for the second lowest cost Silver plan for health insurance. The subsidy advanced by the market place exchange (Covered California, Healthcare.gov) is the difference between the cost of the SLCSP and the family’s consumer responsibility.
The new California Franchise Tax Board (FTB) 3895 is a close mirror image of the federal 1095A. The FTB 3895 statement reports important data regarding your health insurance through Covered California such as the monthly premiums, Second Lowest Cost Silver Plan, and how much Covered California paid to your health insurance company to lower your premiums.
The Social Security retirement income is really important. Your spouse may be on Medicare, and not seeking health insurance, but if they are receiving Social Security retirement benefits, that income, even though it may not be fully taxed, it must be included in the Modified Adjusted Gross Income. Many families have failed to include the Social Security retirement benefits in their income estimated and then found they earned too much money to qualify for the Premium Tax Credit subsidy and they had to pay it all back.
When the Byrd’s put all their information into the application, it calculates that they should pay no more than 7.30% of their income toward health insurance ($3,352 per year), and subtracts that from the annual cost of the Second Lowest Cost Silver Plan ($16,368 – $3,352 = $13,014.12) The exchange then divides the annual $13,014 of the subsidy by 12 months to get a monthly subsidy of $1,084.50.
For most tax payers, the income they estimated on their application for health insurance will not be exactly the same amount as their final Modified Adjusted Gross Income (MAGI) on their 2019 federal tax return. Part II of form 8962 compares the subsidy you received (column f) to the amount of subsidy you are entitled to (column e) from data supplied by the market place exchange on form 1095-A.
As many people enrolled in Covered California have found out, the folks at Covered California will not talk about taxes. Most consumers have also learned the dirty little secret about the federal and state subsidies for health insurance; it’s all about your tax return. The Internal Revenue Service (IRS) and the California Franchises Tax Board (FTB) don’t care how you estimated your income to Covered California to become eligible for the monthly subsidies. They only care about the final income number (MAGI) that entitles you to a subsidy.