If you are going to apply for health insurance under the Affordable Care Act implemented in 2010, one of the most important pieces of data you need to have for that application is your taxable income for the current year.
Determining the implications of taxable income is more of an art than a science because you’re dealing with income estimates for the current year. For someone who gets the same paycheck every week and who has no other sources of income, they might come pretty close to the right figure. But for many others, it takes careful estimating.
To get this figure, your last year’s taxable income figure is not relevant. I know there are many places in your financial world where this figure will be useful, but not when you’re applying for health insurance under the Affordable Care Act.
Why Does Your ACA Enrollment Require This Figure?
Most people know that under the ACA, some folks at lower income levels will receive a subsidy on their health insurance. The official name of this subsidy is the “premium tax credit.” Your subsidy is determined by your current year’s taxable income.
What happens if you estimate your income too high? You will receive a credit when it comes time to pay your income taxes next April. That’s because at that lower income level, you would have qualified for a larger subsidy. So in effect, the government makes this difference up to you when you file your taxes.
But what happens if you estimate your income too low? Let’s say you run a lawn mowing business and you estimated your taxable income at $30,000. You qualified for a subsidy under the ACA which reduced your health insurance costs. But then let’s suppose that you got a few big city contracts so your taxable income jumps up from your estimate of $30,000 to $45,000. You will owe part of that subsidy back to the government at the end of the year because if they had known about your actual taxable income for the year, the government would have allowed less of a subsidy.
What Constitutes Taxable Income?
There are many other types of income besides just the income you get from a day job. All types of earned and unearned income contribute to this figure. Here’s a little more detail on the subject.
Earned income: This is income from paid work. It includes wages, salaries, tips, and other taxable employee compensation. If you are self-employed, it includes your net earnings from that self-employment.
Unearned income: This is income that comes from other sources than paid work. For example, allowances from family, stock dividends paid by corporations, retirement account distributions, unemployment payments, Social Security payments, interest payments, prizes, rental income, strike benefits, lottery winnings, gambling winnings, COVID relief payments, and financial gifts.
Because so many different types of payments come into play when calculating your year end’s taxable income, it’s not really possible to know the exact figure until you file your taxes. You can see why coming up with this figure for your ACA health insurance application is more of an art than a science!
This is why so many people have come to MBhealth to get our assistance during the application process. Our experience can make the process smooth, simple, and result in the fewest surprises down the road!
Give us a call at (314) 544-5400 when you need help getting yourself or someone you care about enrolled in the best possible health insurance plan. We work for you, not the insurance companies!
