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When you enroll in a Marketplace plan, you’re asked to provide your expected income for the coming year to determine your subsidy eligibility. After you enroll, you’re then strongly encouraged to report any changes in your income in the coming year. As it turns out, there’s a reason you’re told to do this- so that you don’t let Obamacare ruin your tax return.
Do I speak from experience? Yes. Am I bitter? You bet I am. Do I want to help you avoid the same situation? Of course I do. So how did Obamacare affect my income tax return? Well…
An Inaccurate Estimate
At the end of 2014 when I re-enrolled in a Marketplace health plan, I was in graduate school and not making much money at all with my very part-time job. At this time, my future was completely up in the air… I was hoping I would be graduating in the spring, but wasn’t completely certain. I also didn’t know what new job or income I would have if I graduated in the spring. When I was asked to estimate my expected annual income for 2015’s health plan, I didn’t think about it too much and just put the same income I had the previous year.
I ended up graduating in May and landing my job with Health Choice One not too long after that. My health insurance benefits didn’t kick in until about two months after I started, so I kept my Marketplace plan. However, I never contacted the Marketplace to update my income. Oops.
Obamacare and Tax Returns
Fast forward to this month, February, when I received my W2s and my 1095-A (the form from the Marketplace detailing the amounts for your premium). Upon completion of my income tax return, I was told that $400 would be deducted from my return because my income was higher than I had estimated. Therefore, I received higher premium tax credits than my actual income qualified me for. I LOVE income tax time and look forward to it every year, but this year I was let down.
While I initially blamed Obamacare for my loss of four hundred bucks, I now realize this is mostly my fault and it could have been somewhat prevented. Please learn from my mistakes.
First, I should have done the math and reported a higher income the minute I began my new job. I would still be responsible for paying back some of my premiums for the first part of the year, but at least a few months of my premium tax credits would have been accurate. I also should have really thought about my expectations for the year. If I would have taken the time to think about it, I’m sure I would have figured that I would be graduating and working full-time. I could have provided a much better estimate.
How to Calculate Annual Income for Obamacare
If you’re like me and incorrectly estimate your annual income, you’ll be required to “reconcile” this difference when you file your federal taxes. The amount you’ll need to reconcile is figured out by taking the difference between the amount of advance premium tax credits you used during the year and the premium tax credit amount for which your 2015 final income qualifies you.2 In my case, the amount of tax credits I actually used was more than what my income made me eligible for.
For example, if your estimated income made you eligible for $1800 in advance premium tax credits, but your actual income only made you eligible for $1200, the difference would be deducted from your income tax return. The difference between the two amounts is $600, so you would be responsible for reconciling a $600 difference on your taxes.
Healthcare.gov provides a few suggestions for how to most accurately estimate your income:1
- Look at your most recent federal income tax return and begin with your household’s adjusted gross income (AGI)
- Consider raises, new jobs or changes in employment, work schedules that might change and result in a different pay mount
- Also think about income from other sources that may change- alimony, investments
Because you are only estimating your annual income, many people with fluctuating hours or commissions may have a difficult time getting a real accurate number. However, if you’re enrolled in a Marketplace plan, please estimate to the best of your ability and as honestly as you can. Additionally, be sure that you report any changes in income to the Marketplace the minute they happen. This will be your best bet for getting the most out of your income tax returns so that you don’t let Obamacare ruin your tax return.
- How to estimate your expected 2016 income. Retrieved February 22, 2016 from healthcare.gov
- How to reconcile your premium tax credit. Retrieved February 22, 2016 from healthcare.gov