At the end of every year, there are certain details you must take care of to maintain your Affordable Care Act health insurance. Every year, people call and ask me questions like:
- “Do I have to call in and renew this with you, Dan?”
- “Will my coverage just roll over?
- “Do I lose my coverage?”
- “What do I have to do to be prepared for any changes this year?”
First of all, I tell them that it is not a requirement to use me or any consultant when it comes to your individual Affordable Care Act decisions. But rates change, plans change, your out-of-pocket expenses go up, and deductibles could be different next year. It’s possible that your plan could be discontinued, so you get switched to a new insurance plan you don’t even know you have. Well, not until you start using it in the new year. That’s why you need to review your plan annually. We help our clients through this process every year.
The Importance of Reporting Your Projected Income Every Year
When I’m working with clients, I always set up their insurance so that their tax returns can update their income estimate for the following year. Remember, the cost of your insurance under the ACA needs your projected income for the following year to determine your premiums. I remind people at the end of the year that if this figure is reported automatically, it must be accurate for the following year.
Next year could be very different from last year. What if you have a job change? What if you’re striking out on your own and your income could be drastically different? If you don’t adjust your projected income, you could be paying three or four times more than you need to.
When you review your ACA coverage at the end of the year, make sure you’re setting yourself up in the most advantageous situation for your premium and coverage for yourself and your family.
Understanding the Connection Between Premium Tax Credits and Income
A question I hear from my clients all the time is, “How do I avoid owing anything back to the government? What’s the penalty?” There’s no penalty per se, it’s just a truing up of what’s called a premium tax credit. That’s what some people call your subsidy just because different people refer to this tax credit in different ways.
When you’re my client, that premium tax credit is based on the income that you and I predict at the end of the year. Let’s say we estimate your next year’s income is going to be $35,000 and that gets you a credit on your monthly premium of $400. What happens if you make $45,000? Or even more? When you have a better year than you thought you were going to have, how does that affect your premium?
If your income is higher, you’re going to owe back some of that $400. Maybe you should have only gotten a $200 a month credit, or $250. They will want that difference returned to them at tax time. Multiply that $200 or $250 times 12 and that’s what you will owe with your tax return. It’s not a penalty, it’s just a truing up of the prior year.
How to Avoid Owing the Government Money at Tax Time
How does the government know what your premium tax credit should be each year? At the end of January, everybody should receive IRS Form 1095-A. That is what you use to reconcile last year’s predicted income with your actual income. What that means is that filling in this form will tell you if there’s any difference between the premium tax credit you used and the amount you qualify for.
If you enrolled in a health insurance plan through the Marketplace, you should receive this form in the mail. Not everyone receives one, however. Whether you do or you don’t receive this form, it’s an excellent idea to have an insurance consultant on your side to make sure you file this form properly.
Once you’re working with MBhealth, we can get out into that marketplace for you with your consent and get you answers, make sure your reports to the government are accurate and help you find the best coverage possible.
Whenever you have concerns about your year-end income reporting, premium tax credit or coverage, call me here at MBhealth Insurance Agency so we can prevent any unpleasant surprises and keep your coverage as ideal as possible. Call us at 314-544-5400.
