Kevin Knauss: Health, History, Travel, Insurance
Posts related to federal income tax and the Premium Tax Credit Subsidy through Covered California.
There are many good reasons to include qualifying adults such as parents and stepparents within a Covered California household. There can also be unintended consequences such as making the entire household eligible for Medi-Cal and ineligible for the Covered California subsidies. The best approach is to understand all of the IRS rules regarding a qualifying relative and how the inclusion of the parent or stepparent will modify the eligibility of the household for the subsidies and Medi-Cal.
The women who called me were appropriately irked that the change to their husbands being the primary applicant conveyed a perception that they were not qualified to be the primary account holder for the management of their health insurance plans.
The 1095-A is almost as important as filing taxes. Even if you did not owe taxes in 2017, but still received the APTC, you have to file a tax return. Covered California has been notified by the IRS if a current household, receiving the subsidy, has not filed a 2017 tax return. Covered California is sending out letters to consumers that their current monthly APTC subsidy will be terminated if they do not resolve the issue.
If you own a small business or receive income for a service you provide, and most likely file a schedule C with your tax return, you should consider having your estimated taxable income reviewed by your tax planner. The IRS has noted that as they develop guidance for all of the changes to the tax regulations for 2018 they will be posting them on their website.
The real story is that rates, especially for older people, have risen so much in the individual and family market that health insurance under the IRS definition of being unaffordable can happen at a very young age. Below are examples of the least expensive Bronze plan rates in Region 1 and Region 3. Within a thirty minute drive between Auburn (Region 3) and Grass Valley (Region 1) in Northern California the rates can be sharply higher.
Consumers logging into their Covered California accounts hoping to renewal their health insurance may find they have lost their subsidy. Instead of the reduced premium amount they are used to paying, Covered California displays that are not receiving the tax credit subsidy and must pay the full premium amount. A common denominator for consumers who have lost their subsidy is that they had been on Medi-Cal in 2016, but later in the year qualified for Covered California and the Advance Premium Tax Credits to lower their monthly health insurance bill. The transfer of critical application information from Medi-Cal to Covered California is missing, triggering a loss of the subsidy.
Some individuals and families who purchased their health insurance through a government exchange like Healthcare.gov or Covered California may be subject to the Penalty for Underpayment of Estimated Tax. The underpayment penalty is triggered when the federal income tax due is less than 90% of the previous year’s tax liability. If a tax household received thousands of dollars of the monthly Advance Premium Tax Credit (APTC) subsidy to lower their health insurance premiums, but earned too much taxable income to actually qualify for the Premium Tax Credit, the tax payer has to repay the entire subsidy. This repayment amount could easily trigger the underpayment penalty.
While Covered California does a great job of marketing their services as an individual and family health insurance marketplace, the ultimate connection of reporting health insurance coverage to the IRS is not a central part of Covered California consumer education.
Covered California will strip the health insurance subsidy from consumers who have not filed their federal taxes beginning on May 16, 2016. Word of the non-tax filer ineligibility for the Obamacare tax credits was released in a summary of updates to the Covered California online application software known as CalHEERS. The release notes for the CalHEERS 16.4 update state that enhancements to the application will include a way for consumers to attest that they have filed their taxes.
Mr. Polk learned from his CPA on April 7th, 2015 that he owed $13,230.43 for the repayment of excess APTC for 2014. The CPA had properly taken the Covered California 1095-A and completed IRS form 8962 Premium Tax Reconciliation. It was clear on form 8962 that the addition of the Polk’s social security retirement income and tax-exempt interest had pushed the Polk household income over 400% of the federal poverty line.
