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Covered California Q&A

Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Subsidy Without Income Verification?

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Question: Covered CA has a paper app that does not include income info(online you click that you do not want help from the government). If a person bypasses the income information but applies thru Covered CA…can they still qualify for a tax credit at end of the year if their income was such that they would have qualified for a subsidy?

Answer: No. They must provide income information (and verification if requested) in order to be eligible for the tax credits retroactively. So, the long form of the paper app would be required in order to keep the option for tax credits.

13 Comments

Ferdinand … you still have not answered my initial questions about your age and where you live, and your household size. That would certainly help to know.

Freelancer has adequately and clearly articulated what you fail to understand about taxation.

And as far as the socialist aspect of “Obamacare” I don’t think anyone would disagree with you on that.

It’s your lack of understanding about taxes, as Freelance pointed out, that causes you to stumble over all of this. Have you even tried working with a licensed insurance agent to figure any of this out? We’re all quite glad to be of assistance.

Ferdinand, you are confusing the concept of a tax deduction with a tax credit. No, we self-employed people do not get to claim a credit for the full premiums we pay, but if we are eligible for a premium credit under ACA, we can combine that with the tax deduction we get for our out-of-pocket premiums to maximize the tax benefit. That puts us in a better position financially than employed workers who are not offered subsidized insurance by their employers — and have to pay their premiums out of post-tax dollars.

Your math is far off as well — if you have a self-employed health insurance deduction of $6000, your net benefit would be equal to your marginal tax rate. Even at the lowest tax bracket — 10% — that would translate to a $600 tax cut — but of course if you qualified for that tax bracket, you would probably also qualify for substantial ACA subsidies as well.

So assuming your income puts you outside of subsidy range, let’s also assume a 25% tax bracket — that means that a $6000 above-the-line deduction reduces your tax liability by $1500. Since this is a California forum, we’ll also assume that the taxpayer who earns too much to qualify for subsidies is also paying state tax at a 9.3% rate — since California also allows the same self-employed health insurance deduction, that means that the $6000 write off leads to a $2058 tax reduction.

That’s not the same as getting free insurance, but it is the functional equivalent of a $172 monthly subsidy — and this is something you get when your income is too high to otherwise qualify for subsidies under ACA (above 400% of the federal poverty line)

It’s true that it’s harder to predict self-employed income - but the flip side is that the self-employed have more control over income flow, especially if your “problem” is that you are making more money than anticipated. If you are worried about income going over a threshold that eliminates eligibility for subsidies — you might be able to defer some income simply by refraining from nagging people who owe you money in December, or you can increase business expenses and reduce net income by investing money in needed business equipment or supplies, or hiring extra part-time or temporary help.

Again, if you are self-employed, the cost of insurance is merely one of many financial concerns that are unpredictable. The advantage of ACA is the guaranteed issue part — before ACA, many self-employed people could not get insurance at all, at any price — and others were stuck with expensive policies they couldn’t really afford, but with no options to shop around because they couldn’t qualify for cheaper policies.

As a healthy person in my early 60’s, I’m happy that I can opt for a a high deductible plan with lower premiums now, without fear that I will be stuck with that plan if I develop a chronic & more expensive health condition before I’m old enough to qualify for Medicare.

Thanks for the info but it’s not a dollar for dollar deduction. If you paid $6,000 in health care premiums you will not get the $6,000 back, you will be able to reduce your AGI and perhaps benefit from that by maybe as much as 4 or 5 hundred dollars. This means you are still out of pocket approx. $5,500.00.

There are other issues regarding self-employed people. Many of us don’t know what our income is going to be next year so the issue of premiums and subsides becomes more complex.

I do know people in the business and all of them agree that Obamacare as added a tremendous amount of bureaucracy to the system. Someone has to pay for this added expense.

Thanks again for your efforts. I’ll do further investigation.

hanks for stepping into the discussion Freelancer. I didn’t want to be the only “voice” on the tax issues. The information in your link to last year’s post remains appropriate ad far as I can tell.

Ferdinand,

If you are self-employed, you CAN deduct every dollar you pay for premiums from your income. It is called the “self-employed” health insurance deduction, it is 100% dollar for dollar deduction, and it is on line 29 on the 1040.

You can also write off half of the self-employment tax you pay. The other half is the same amount that employed people are assessed through FICA — so after you have taken your 50% self-employment tax writeoff, and you have deducted 100% of your health insurance premiums — and you have taken a deduction for a self-employed retirement plans — you have been given a lot of tax breaks by the federal government.

I’ve done the math. A self employed individual could easily have a net income of $75,000 and qualify for subsidies after taking advantage of various deductions to reduce their AGI. You can see the calculation here: http://obamacareguide.wordpress.com/2013/10/20/figuring-your-household-income-part-two/

The only thing is that if you do qualify for a subsidy, the math gets a little complicated for figuring out the amount of your line 29 self-employed tax insurance deduction, because you can only write off the amount you actually paid after accounting for the tax credit subsidy, and you can’t figure out the amount of the subsidy without knowing your AGI. So it is a circular calculation and takes a little bit of extra work to figure out.. unless, of course, you buy tax preparation software that does the math for you.

Here’s my post explaining how to do the math on that: http://obamacareguide.wordpress.com/2014/07/25/self-employed-health-insurance-deduction-the-iterative-calculation/

I never wanted anything for nothing. I’ve been working since I was 12 years old so please don’t preach to me about work and fairness. I didn’t just arrive in this country. My family dates goes pack to the very beginning when there were no services, giveaways or subsidies.

Note: you cannot deduct 100% of your health insurance premiums form your taxable income. It’s not a dollar to dollar deduction. Additionally, I pay an additional tax on top of the federal, state and local taxes. I pay a self-employment tax. So please learn more about the tax system and how it works. Now there are many people who do want a free ride and do want subsidy and that’s the very basis of Obamacare. To subsidize and pay for people who don’t have the means to pay for healthcare themselves. Guess what, someone has to pay for it.

By the way I’d sell my home to avoid bankruptcy. I’m not one who would ever file bankruptcy and I have no debt other than my home. Obamacare is a giveaway, an attempt to redistribute wealth. It’s that simple. I know people who have been in this country a very short time paying next to nothing for healthcare and I know people who have a certain amount of wealth but are older and can’t afford to increase their healthcare expense. You also fail to note that as for myself like many others we have been paying heavy duty taxes into this system for many, many years. My parents paid into it, my grandparents, my great grandparents. Take your preaching elsewhere unless you get a handle on the facts. I work 80 hours a week. I home my own home. I work for myself. And I pay my bills and my taxes.

Obamacare like many other ideas of this type is rooted in the idea of rewarding negative statistics and penalizing positive statistics. It simply doesn’t work. Reward down statistics and you get more of them. Penalize up statistics and you eventually get more down statistics. It’s really that simple.

Ferdinand (or Alexander) …

I can understand your frustration — thanking Obama for the problem and putting the blame on the insurance companies (unfairly) like a good politician — but you also don’t provide enough information about yourself to be able to respond more specifically. To say you earn too much to obtain premium tax credits means your household income exceeds $897.69 per week as a single person, or $3083.82 per week as a household of 8. Which is it? Or is it somewhere in between as a household of 2-7? I can’t tell.

Beyond that, you lose me in your rant. If you are single, and you live in San Francisco, and you’re 64 years of age, your cost for the most expensive Platinum plan … an EPO from HealthNet … would be about $1511 per month, or about $351.40 per week, leaving you $546.29 for other expenses. We should all be so lucky. If you moved to Los Angeles, the highest cost Platinum plan … an EPO from Anthem … would only be about $1132 per month, a savings of about $88 per week.

But if you’re 34 years old, those same plans would cost $632 and $459 per month, respectively, leaving you with about $750 to $790 in weekly disposable income. I don’t know what your lifestyle is, but we all have choices to make. And if paying $110-$150 per week for health insurance is too much for you, good luck finding the same income AND quality health care somewhere else in the world. The rest of us will just have to suck it up and pay the higher taxes you leave behind.

I don’t think you have to move out of the country, I think you need to get a grip on reality. I don’t think health insurance is too costly for you at any age. But you, like too many others in America, seem to want something for nothing. And for that, there may be no hope for you over the next 2 or more years, now that the Republicans have reclaimed the House and Senate in Washington, DC. It’s rather doubtful they will have the ability to repeal the PPACA (“Obamacare”).

And don’t put the blame on being self-employed with variable income, either. Plenty of us are in that same boat. You, unlike the vast majority of households in America, at least have the ability to deduct 100% of your health insurance premiums from your taxable income, which, in effect, is like having the government pay the full cost of your insurance, so don’t tell us that this is “unfair to someone in my position,” because it’s not. You have a tremendous advantage in this.

So if your statement, “I earn too much to get any help but to [sic] little to afford it, unless of course, I sell my home,” is accurate, then, yes, you probably do need to sell your home because with or without health insurance, you already have one foot in the bankruptcy grave already.

Where would you like to go? Maybe someone will start up a collection for you on GoFundMe.com.

I have no idea how I can afford this. I earn too much to get any help but to little to afford it, unless of course, I sell my home. I am also self-employed and do not have a consistent income. This is far too complicated and unfair to someone in my position. I get screwed but I’ll probably end up paying more to not have insurance and ulimately paying for someone who is being subsidized. Thank you Mr. Obama for the bill I will get and receive nothing for. This has encouraged me to move out of the country. The mandate is as crazy as the insurance companies that keep driving up health insurance cost in the first place. If I stay this will push me out of the middle class into the lower class. Thanks for helping the middle class Obama. NOT!

Phil , Your new Q and A contradicts the previous posting:

Question: With variable investment income, I decided not to wait for income verification. If I pay the full premium thru 2014 and then my 2014 Income Tax Return is below the income level, can I receive the subsidy on a retroactive basis?

Answer: Yes. In fact that would be the ideal way to handle your variable income issue.

In my opinion if I chose “without income verification” is because I do not know for sure what I make in the future but want to have this option available. I thought this is the intend of this option.

Cris …

In order to avoid Medi-Cal eligibility, you simply have to increase your reported income to just over the 138% FPL limit. Start with $16,000 for a single person, add $5550 for each addition member of your household.

If you don’t want to take all or a portion of the premium tax credits in advance, you can adjust the amount to be applied to your premium all the way down to $0 if you prefer.

How much is the premium? That all depends on whee you live, what your age is, and the plan you select (bronze, silver, gold, or platinum). Once selected, you will keep that plan for all of 2014. When open enrollment returns in October for 2015, you can change plans at that time if necessary.

Very useful answer freelancer. Unfortunately this is not clear stated on the COVERED page when you make the option for premium help.

In addition the operators at Covered still need to be informed about many things. I was almost pushed into Medical since my self employed income is variable and lower. The operator would not allow me to buy UNSUBSIDIZED insurance through exchange because my income may be a Medical income! As a self employed I have no idea what my income will be but I need to have the option opened at the end of the year in case I qualify then. If I pay the premium full amount what is the problem?

The only requirement that I am aware of is to purchase a QHP through the exchange. Without that, a person cannot receive premium tax credits at tax filing time.

I cannot find any law or regulation that suggests that you have to apply for an advance premium subsidy in order to qualify for an end of year tax credit.

The law is 26 USC 36B - http://www.law.cornell.edu/uscode/text/26/36B

(a) In general In the case of an applicable taxpayer, there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the premium assistance credit amount of the taxpayer for the taxable year. (2) Premium assistance amount The premium assistance amount determined under this subsection with respect to any coverage month is the amount equal to the lesser of— (A) the monthly premiums for such month for 1 or more qualified health plans offered in the individual market within a State which cover the taxpayer, the taxpayer’s spouse, or any dependent (as defined in section 152) of the taxpayer and which were enrolled in through an Exchange established by the State under 1311 [1] of the Patient Protection and Affordable Care Act, or (B) the excess (if any) of— (i) the adjusted monthly premium for such month for the applicable second lowest cost silver plan with respect to the taxpayer, over (ii) an amount equal to 1/12 of the product of the applicable percentage and the taxpayer’s household income for the taxable year.

The use of the word “shall” in paragraph (a) is mandatory: that is, if the taxpayer qualifies for the credit, he gets it — there is no room to impose additional conditions that are not specified in the law.

To get the credit the person must be enrolled via a state exchange, and must have an income between 100 and 400 per cent of the poverty line.

The only situation I can see where the issue of whether the person applied for an advance subsidy by submitting financial information would be for those whose year end income is under 100% of the FPL— those people would be entitled to a subsidy under the “Special rule for taxpayers with household income below 100 percent of the Federal poverty line for the taxable year” as specified in 26 CFR 1.36B-2, but only by virtue of the exchange’s previous determination and authorization of advance payments. See http://www.law.cornell.edu/cfr/text/26/1.36B-2

So bottom line: if year end income is between 100-400% of the FPL and the insurance was purchased via a state exchange, then the tax credit will be available whether or not the person asked for an advance tax payment.

However, if income is less than 100% of FPL, then the taxpayer will not get the tax credit unless the person actually received advance payments based on a determination of a state exchange that anticipated income was within the 100-400% range.

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