Obamacare Subsidies May Increase IRS Tax Bill

For the fortunate few that receive federal subsidies to lower their Obamacare exchange health insurance premiums, the joy of the subsidy may end at tax time.

It seems that the IRS tax code concerning the federal subsidies requires everyone receiving them to notify the insurance exchanges of any changes in their incomes throughout the year.  If someone gets a raise, changes jobs, loses hours, gets promoted or even receives bonuses or added commissions, they are required to notify the exchange where they purchased their plans.

For those who experience a loss or decrease of their family income but didn’t report it may actually be surprised to see a refund in the 2015 income taxes, but they may also receive a bill for more taxes because of not reporting the change.  Those who have an increase in family income who do not report the changes are likely to get a bill from the IRS to pay back some of the subsidy they received.

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One source says that about 38% of Californians who received federal subsidies could receive bills from the IRS for more than $850 for not reporting increases in their income.  If they are expecting a tax refund, the payback may be deducted from their return.  If they have to pay additional taxes in 2015, it will likely be added to that amount.

Taxpayers within 200% of the poverty level, who have to pay back federal subsidy money, will have their payback capped at $300 per person or $600 per family.  Families making 400% of the poverty level who have to pay back federal subsidy levels will have their payments capped at $1,250 per person or $2,500 per family.

Chris Condeluci, was a GOP tax counsel for the Senate Finance Committee when Obamacare was first drafted, commented:

“If I were the IRS, I would be very concerned that I’m going to be viewed as the villain when people have to pay back money the government gave them for health insurance.”

There is one way to avoid having to pay back the federal subsidy and that is not to take it in the first place.  You can choose to pay full price for your exchange health policy and then if you do qualify for the federal subsidy, you could then apply for tax credits when you file your 2014 taxes in 2015.  But few people can afford to pay the full price of the exchange policies, making this an option few will opt for.

First we learned that states will start seizing the estates of people receiving Medicaid coverage to recover the cost of their health care.  Now we are learning that people receiving federal subsidies to help pay for their exchange health policies may have pay some of that subsidy back to the government.  The lesson learned is that nothing is free and you can’t trust the government in anything anymore.

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