As more and more people go onto the Health Care Marketplace to get their health insurance, they need to mindful of the cliff that can mean paying back tens of thousands of dollars of health insurance subsidies. This is an area where planning is critical if you are close to the limit.

Podcast Script:

As more and more people go onto the Health Care Marketplace to get their health insurance, they need to mindful of the cliff that can mean paying back tens of thousands of dollars of health insurance subsidies. This is an area where planning is critical if you are close to the limit.

I remember us talking about this earlier, but what is the cliff that you are talking about?

When you enrolled for health insurance in November or December of 2018, you listed the income you expect to have in 2019. The subsidy for 2019 is based on that estimate. Then, the amount is reconciled when your 2019 return is filed to determine if you received too much or too little subsidy. If you estimate low, you may receive a lot of subsidies, which means you paid very little in healthcare costs.

Let’s say something happened over the year and you received some unexpected income from an inheritance or another source. Now your income is going to be higher. That could mean you have to pay back a lot of that, or if not all of that subsidy.

But you are not eligible for any subsidies if your family income is 400% or more of the federal poverty limit. This means that all subsidies need to be paid back.

So if I expected my income to be low and then it was higher than expected, I could have to pay back ALL the subsidies?

Yes – a family of four income limit is $100,400. If you have $100,399 you may have to pay some back, but it will be a relatively small amount. If an unexpected event happened where you have $100,401 you have to pay all of the subsidies back. If you underestimated your income to get a high subsidy, it could cost tens of thousands for one or two additional dollars of income. It’s crazy!

That’s mindboggling. What do people need to do and how do they be aware of this?

First, make sure you work with your accountant and your health insurance advisor. If you are even close to your limit and you can find out exactly what your limit is, you really have to be aware of all the different income sources going toward that amount. Also be aware that if you are a family of four, it’s not only you and your spouse’s income. It is also the income of your dependent children that gets added in to that amount. If your kids get a simmer job and make more than you expect, that summer income could push you over the limit where you thought you were safe. That’s why you really need to pay attention, especially if you are very close to the limit.

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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