Your federal tax return is not linked to your Covered California account. Your adjusted gross income listed on your last filed tax return is not sent to Covered California. There is no automatic update between your federal or state income tax return and your Covered California enrollment.
Covered California Does Not Update Your Income With Tax Return Data
A persistent myth among individuals and families enrolled in subsidized health plans through Covered California is that when they file their federal income tax return, the IRS sends information to Covered California to update the estimated income. This misconception also finds its way to people enrolled in Medi-Cal. There is no income data transfer between the IRS and either Covered California or Medi-Cal.
Frequently, Covered California consumers have called me because they suddenly found themselves in Medi-Cal. They had been in Covered California with private health insurance and the subsidies. When Covered California renewed their coverage during open enrollment, the estimated income was below the threshold for subsidies the consumer and/or their children were now Medi-Cal eligible.
Many of these folks had not been paying attention to their income estimate that could have been several years old. They were under the false notion that when they filed their federal tax return, the IRS would tell Covered California to update the income estimate.
Your prior year’s adjusted gross income is not sent from the IRS to Covered California. Covered California does not request your last filed tax return to update your income estimate. Only the consumer or delegated agent can adjust or update the estimated income in the Covered California account. The caveat to this is that your county Medi-Cal office can make changes to your estimated income. However, the information used by Medi-Cal does not come from your federal tax return.
It would be a bad practice to have your last filed tax return income amount become your new estimated Covered California income amount. First, the income estimate is more than just your adjusted gross income. It is modified by Social Security benefits and tax-exempt interest. There are household’s who must also add in the taxable income of dependents. Many of the variable income sources can significantly change from year to year.
Secondly, for tax payers who have a small business, there can be situations where unexpected expenses overwhelm their gross revenue leading to a net income of $0. This would severely underestimate their income for the next year. Finally, individuals can have large taxable events, such as selling a home, that balloons their adjusted gross income for just one year. The large, previous year’s adjusted gross income could make the household ineligible for any subsidies through Covered California.
Covered California Checks Federal Data Base For Income Comparisons
Covered California does interact with the IRS, passively and directly, regarding your Covered California.
1. When you first apply for Covered California, submit a change and during the renewal process, Covered California will compare your estimated income to your last filed tax return’s adjusted gross income. If the estimated income is +/- 20 percent of the last filed AGI, it will trigger an income verification request. This means you will need to show proof of your estimated income. The income attestation form can satisfy this requirement.
2. At the time of renewal, Covered California checks to see if the primary tax filer on the application has submitted a federal tax return for the previous year. If they can not verify that you filed your taxes, Covered California can not forward you the subsidies for the next year.
3. After the year has closed, Covered California forwards notification of the 1095A tax document to the IRS. This alerts the IRS that when you file your tax return you may have received the Advance Premium Tax Credits and you must reconcile those subsidies on form 8962.
All the above actions happen in the background of the application or during the tax document distribution period in the new year. The income comparison and tax filing status occurs by accessing a federal database. No one at Covered California calls the IRS for information and the IRS does not send Covered California any of your information. No one at Covered California will ever see your federal tax return unless you provide it to them.
Your estimated income amount is your best, good-faith, estimate of your Modified Adjusted Gross Income for the next year. If you are receiving the APTC subsidies to reduce your health insurance premiums and no one in your household is Medi-Cal eligible, then only you or your delegated agent can change your Covered California income estimate. It will never be updated to your last filed federal tax return.