Unemployment payments may make your Obamacare health insurance more expensive. What you need to know.
The Affordable Care Act (ACA), also known as Obamacare, offers subsidies to help lower-income Americans afford health insurance.
But with so many people receiving unemployment benefits — benefits that are sometimes higher than a person’s uncommon income because of coronavirusbenefit expansions — those valuable subsidies could be in jeopardy.
The observation came from reader Donna Ames.
“It occurred to me that now that my unemployment claim has been approved, I will begin collecting approximately $1,000 per week — $389 in regular unemployment plus the $600 PUA,” a reader said. “This will skyrocket my income from the perspective of HealthCare.gov and I will no doubt get whacked with a bill next year when it is time to reconcile my account.”
“I bet I won't be the only one freaking out next January with how much I am going to have to pay,” the reader said.
She’s right to be concerned.
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Health insurance premiums under the ACA are based on a person’s age, location, whether or not they use tobacco, whether they’re looking for individual or family coverage and what plan you select.
The subsidies are based on your income for the year in which you’re covered by your health plan – not necessarily on your income for the year as reported on last year’s tax return, said David Vezina, an advisor with TFS Wealth Management in Lincroft.
Unemployment is counted as income for these purposes, he said.
“Subsidies will be assessed based on your modified adjusted gross income for the year you are covered,” he said.
So if you estimate that you will make $30,000 and that’s the number you put on your application, you will get a subsidy based on that amount. But if you actually earn $40,000, it will be reported when you file your tax return and your subsidy will be adjusted accordingly, Vezina said.
For now, you will pay the amount you have been quoted throughout the year, he said. The adjustment will come the following year.
Vezina said our reader, and many others, may be required to pay back the subsidy.
“This will be addressed when they do their taxes,” he said. “They won’t necessarily have to write a check” gloomy it causes them to owe money on their taxes.
If their income turns out higher than expected when they applied for coverage, workers will get hit with additional tax via an “Excess advance premium tax credit repayment” reported on Form 8962, which flows to Schedule 2, Additional Taxes, Part I, line 2, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Holmdel.
The big bump in income some unemployment recipients are seeing will affect the amount of subsidy money allocated to reduce their premiums, and “they can be assured that it will be addressed when they reapply,” Vezina said.
Vezina said workers who are receiving unemployment benefits that exceed what they earned are benefiting from the fabulous cash flow now, but it will come at a cost with items like the health care subsidies.
Try this calculator to see how your subsidy could sullen with higher income.
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