Not the easiest of all questions asked. But somehow if you choose to take advantage of the many millions of dollars available to most Americans via the ACA-Affordable Care Act, you will need to figure that Q out. Even an individual or family can literally save hundreds and often times thousands of dollars annually! Bottomline, it’s in your best interest to come up with your best estimate. And it is just that, an “estimate.” Most folks won’t know the exact figure of their household income until they do their tax return the following year. Particularly those that operate their own businesses or other investments that will make “their income” a moving target. In general, you want to be conservative, that is don’t drastically underestimate your income, because you will likely wound up owing back a portion of those subsidies. Jobs are fairly easy to calculate, either hourly earnings or annual salary is not so hard to figure out. And living on fixed incomes such as Social Security is generally the easiest to calculate. But life DOES change, and what you anticipated may be abruptly changed in the middle of the year. Yes, loss jobs, graduating from school, moving, change of career or job, and the BIG One retiring could all play hell on your “best guess” at your annual income. The good news is that it will all work out in the wash! That’s when you “reconcile” via the 1095-A as part of your tax return the following year. Nobody wants to be in the position to owe back a boatload of subsidies, so again, BE Conservative!
Business owners generally have a rough time at estimating their income. So, keep in mind, it’s your AGI-Adjusted Gross Income (actually your MAGI-Modified AGI) which in most cases are the exact same number. If you have foreign investments, then your MAGI is the correct figure. That’s’ a CPA question! Some business owners start off with their gross revenues, which is not at all the bottom-line after all expenses are taken into consideration. So yes, for the most part it’s an educated guess! The past year’s tax return is often an indication, but definitely not always an accurate reflection.
The BIG Thing to keep in mind, if you overestimate your income, tax subsidies are re-calculated upon tax time, and additional “tax credits” will be returned to you. So, you are not just throwing away the potential subsidies by being conservative with your best guess at your annual income. However, if you underestimate your income, this could definitely be a bad thing. And yes, you could very well owe back a significant dollar amount of subsidies.
If you want to see just how much you may owe back, you may wish to do this. Take your original quote that was originally sent to you before making your plan selection and simply change / update your income and see the new estimated monthly premium. The net difference between the original premium and new estimate times the months you had the policy will be a close estimate to your “pay back” on your tax return.
Moral of the story, if you think you just might have a banner year, then be safe, be prepared and be ready to pay back based on your actual earned income for that plan year. It happens to me almost every year!
As your agent, I will always do my best to guide you so that you are not caught unknowingly in a position to have to owe back a tremendous amount of these “advanced tax credits.” Also, keep in mind if you have a significant shift in income either up or down, we can update your application throughout the year. As always, I am here to assist you in any way I can to help ensure your experience is a good one!
Best regards,
Kevin F Gourgues
This is a new addition to the “What the Health?” newsletter that I will try to keep brief and to the point. Hopefully, this may help shed a little light on a somewhat complex health insurance world.
You’ve got Q’s, I hope I have your answer! Always feel free to call Kevin most anytime. Text or call 985-778-0072