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How to Report Income Change?

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Question: In a household of two, from 1/2014 - 8/2014 my income was roughly $50,000~, however I am retiring and my current income is $2700/mo. Do I report my income with the $50000 included from earlier in the year(and not eligible for subsidies), or do I use my current income?

Answer: Your current monthly income alone is used to calculate your new subsidy and cost-sharing reduction. The current Covered California online application allows for entering your higher income for the first 8 months (in your case) and the lower income for the last 4 months, however only the current income is used in the calculations for assistance not an average of both.


The long reply of October 16, 2014 10:36 PM that starts with “I think an income change leads to a SEP in these cases”

was attributed to Rachel Crouch, but should be attributed to anon.

There are more than just two factors affecting rates for persons who were enrolled in health plans for 2014.

1) Yes, the “average” rate increase for 2015, according to CoveredCA, is about 4.5% compared to 2014 rates.

2) APTCs are based on the cost of the 2nd lowest plan, and are also affected by the FPL for the year. But FPL is not officially announced until March or April, so, yes, that too is an unknown factor — as is a person’s/household’s MAGI until income tax returns are prepared and filed.

3) What you forgot to include is the fact that premiums for persons age 19 and older are based on age, so a person who paid age 40 rates in 2014 will pay age 41 rates in 2015, and that will be higher in addition to the general increase in rates for the year. So even though the “average” rate increase might be only 4.5%, a person’s individual rate could increase by 6%-8% or more.

Like all good liars, CoveredCA hints that a person’s APTCs could also increase, masking any real increase in premiums. This won’t be known for another month or more.

I think an income change leads to a SEP in these cases:

  1. The change in income makes you newly eligible to receive a subsidy; previously your income was too high for a subsidy.

  2. The change in income makes you newly INeligible for any subsidy, but you were previously receiving a subsidy.

  3. The change in income makes you newly eligible for cost-sharing reductions (income in a small region above Medicaid, able to participate in one of the 3 special Silver plans - Silver 73, Silver 87, and Silver 94).

  4. The change in income makes you newly ineligible for cost-sharing reductions you were previously getting.

A change in income that simply moves you from one amount of subsidy to another and does not involve a change in eligibility for cost-sharing reductions does not lead to a SEP.

However, when you report the income change you should start getting the new subsidy amount. Then, it all has to get reconciled on your income taxes. You may owe extra income taxes, since the calculations at income tax time are based on the full year’s income; your original subsidy was based on a projection of your annual income based on a lower monthly income. You got an amount of subsidy that, from the annual perspective, you turn out to not have fully qualified for. You may not have to pay back all of the excess subsidies, but certainly some part of them.

For instance, maybe you were getting a $400 subsidy, and after 6 months you start earning more and qualify for a $200 subsidy. During the full year you got 400 x 6 + 200 x 6 = 3600 in subsidies. When you do your income taxes, you may find you were only entitled to 3000 in subsidies when considering the full year’s income. You may have to pay back part of the 600 overage. There are limits in how much one has to pay back, however.

If one turns out to have earned so much more that one was not entitled to any subsidies at all, then all subsidies received as advanced premium tax credits are supposed to be paid back.

There are disagreements regarding what enforcements the IRS can use to collect those extra taxes. I wouldn’t assume you can skip paying them. The IRS can probably reduce tax refunds to claim those taxes; or, it can apply the following year’s taxes to THOSE back taxes, leaving you short on the following year’s taxes, which they can certainly collect, garnish wages, etc. Anyone who plans to try to skip out on repaying excess premium subsidies is making assumptions and taking a big chance!

These particular detailed SEP rules are described almost everywhere as simply “certain changes in income.” It’s a shame that it is so vague. I’m not even sure every insurance agent can spell out the rules. The rules have not been clearly or widely disseminated.

Disclaimer: I am not an agent, attorney or tax professional and this post should not be relied upon as legal or tax advice.

For 2015 I am under the impression exchange customers will be exposed to 2 areas where net rates may change.

1) their individual plan rate change 2) changes in their subsidies due to increase/decrease/change of the benchmark 2nd lowest cost silver plan

Is #2 mostly a theoretical factor for 2015, or did we see significant increse/decrease for the benchmark silver plan in the various regions.

I know this question is dependent on region, just trying to get a feel of what to expect.

For example, if 90% of regions had the same benchmark silver plan and the increase was 1%, then not much to be concerned about. On the other hand, if 90% of regions had a new benchmark silver plan come in with 10% reduction in premium, then most people will see a decrease in subsidies, in addition to their plan’s inate increase/decrease in premiums.

Congratulations on the increase in income!

You will not be penalized. However, you are required to reconcile the Advanced Premium Tax Credit (aka “subsidy”) received at tax filing time. I suggest you plan for a subsidy pay-back (approximately 75% if you’re a household of one) based on your increase in income without a subsidy adjustment.

I don’t think your change in income is wide enough to make you eligible for a special election period, which would allow you to change plans outside of open enrollment.

I signed up for Covered California insurance through Blue Shield back in January of this year, but had an income increase after open enrollment had ended. I believe I went from having a $25,000 yearly income to $34,000. When I reported the income, the website told me I needed to change plans but then would not let me sign up for another plan as open enrollment had ended.

I tried calling my insurance company directly but was again told that open enrollment had ended. Will I be penalized for the income difference if I’m receiving more subsidy than is required by my income? Also, is there a way to change my insurance plan now?

Does it seriously work that way now?

Your answer might get them point of service CSR which they will never have to pay back, but not sure it’s the right answer in terms of ultimate premium subsidy reconciliation on 2014 income tax return to be filed April 2015. Doesn’t that look at annual income as a whole? Someone who earned $1M in the first 6 months of 2014 and then just enough in the second half of the year to stay above Medicaid levels might be able to get the system to pay APTC and CSR for the second half of the year, but my understanding is the entire APTC will have to be paid back in tax due later, and the very large discrepancy between actual MAGI and receipt of APTC may raise eyebrows leading to possible assessment of penalties.

I’m not an agent or an expert, but what I would do is take my annual anticipated MAGI for 2014 and divide it by 12 and report that as my monthly 2014 income. Covered California permits both reporting of monthly and annual income, I believe, but I was told when I applied last December to figure out my annual income and divide it by 12, rather than count on their systems calculating things correctly.

Advanced Premium Tax Credits and Cost Sharing Reductions (aka “subsidies”) are based on estimated annual income and reconciled based on actual “IRS filed” annual income.

In this case, the subsidy will be based on estimated annual income of $60,800 and it is worthy to note that the subsidy is eliminated when a household of two reaches annual income equal to or greater than $62,920.

While this may be an accurate description of how CoveredCA calculates advance premium tax credits, as I understand the IRC, it is not how the IRS will “reconcile” tax credits with MAGI at tax filing time.

Tax credits will be available to those persons whose 2014 MAGI amounts are not more than 400% of FPL, which, for a household of two, is $62,920. $50,000 + 4 x $2,700 ($60,800, total) is 386% FPL limit, and would result in a very small amount of tax credits, if any.

Tax credits based on $2,700 monthly income ($32,400 annual income = 206% FPL) could be excessive and result in a clawback, even if only provided for four months.

I would recommend reporting an estimated average monthly income for the year (expected gross income divided by 12) to avoid any APTC issues at tax time. Any unused/unclaimed tax credits are fully refundable as long as you obtain health insurance through the Exchange.

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