In our continuing review of the impact on our industry and our clients due to the implementation of the ACA heath care act this article discusses individuals buying private health insurance and receiving subsidies to help pay for it.
These subsidies are based upon your income and since no one knows what they will make in 2014 when individuals apply the amount they receive will be based upon their reported income in 2012.
A sample draft of the application for insurance that runs 15 pages for a three person family asks people to project their 2014 income if their current income is not steady or if they expect it to change.
Most taxpayers won't actually receive the subsidies. Instead, the money will be paid directly to insurance companies resulting in reduced premiums.
The subsidies are tax credits because they are administered through the tax code and will help low and middle income families buy health insurance through the state-based exchanges. According to an estimate by the congressional budget office, 18 million individuals will qualify for assistance. A family with an income up to 400 percent of the poverty level is eligible. This year, four times the poverty level is about $62,000 for a two-person family. For a family of four, it's $94,200.
If the income reported on the application is less than what is actually earned for 2014, the individual (or family) would have to repay the excess received according to the following guidelines.
If families get bigger subsidies than they are entitled to under the law, the amount they have to repay is capped, based on income and family size. If they get less than they qualify for under the law, the government will pay them the difference in the form of a tax refund.
There are also special rules that protect people who marry or divorce from being required to pay back subsidies just because their marital status changes.
There are four thresholds for repaying the subsidies:
A family of four making less than $47,000 would have to repay a maximum of $600.
If the same family makes between $47,000 and $70,000, the amount they have to repay is capped at $1,500.
If the same family makes between $70,000 and $94,200, the amount is capped at $2,500.
Families making more than four times the poverty level have to repay the entire subsidy.
These levels of repayment are not set in stone. Twice since the health care law was passed Congress has increased the caps for how much people will have to repay. Combined, the current two measures are expected to raise more than $40 billion over the next decade, according to Congress' Joint Committee on Taxation.
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