What If I Overestimate My Income for the Affordable Care Act?

What If I Overestimate My Income for Obamacare?

The Affordable Care Act (ACA) allows individuals and families to apply for premium tax credits and subsidies that will reduce either their monthly premiums, out-of-pocket medical expenses, or both. But, to be able to determine if you qualify for a tax credit, you must first estimate your income for the upcoming year. For some, this is easy. For others, it can be a much more complicated process.

So, what happens if you overestimate your income? You may have been eligible for subsidies, but since you overestimated your income, you didn’t get them throughout the year. Let’s talk about what you can do in this situation.

How Do Obamacare Subsidies Work?

The ACA provides two types of subsidies. Typically this type is referred to as advanced premium credit, which helps to cover ACA health insurance premiums that have been purchased through Marketplaces. If your current projected income is less than your actual house income, then you will be obligated to return this money by the end of the year unless you have a prior commitment. If you exceed your income limit, your refund will also be refunded after your income statement is filed. You may also report changes to taxable income if the Marketplace has been updated.

How Do I Estimate My Income for Obamacare?

Estimating your expected income for Obamacare can take a little bit of time, but it’s well worth it if you qualify for tax credits. While this may require more effort for some than others, the basic instructions are:

  1. Calculate your household’s AGI (adjusted gross income). You can either use the number on your most recent tax return or do manual calculations using your latest paystub. If using a paystub, locate the box that shows your federal taxable wages. Subtract benefits like health insurance or retirement, then multiply that number by the number of paychecks you should receive in the year. That is your AGI. Remember, you must do this for each person in the household, regardless of if they need insurance or not.
  2. Add tax-exempt foreign income, if you have any. Also, include Social Security or railroad retirement benefits and any income from interest.
  3. Adjust your number to include changes you are expecting in the upcoming year. (This is the tricky part unless you have a crystal ball!)

Now that you’ve got your estimated income, you can use that number when you apply for an Obamacare plan.

What Should I Do If I Overestimated My Income?

So, what if, at the end of the year, you find that you did not earn nearly the amount you expected? Can you get the money back that you should have received in tax credits? Yes, you can.

Let’s talk about this using an example. Pretend you are a recent college graduate and expect to have a job in August. You know what kind of salary you can expect, so you use that estimate on your ACA application for insurance. As it turns out, you didn’t find a job until October, and it was for a lower salary than you thought.

This situation is easy to rectify. When you submit your tax return for the year, you’ll include your actual AGI and the fact that you were enrolled in an ACA plan. (No subsidies exist for non-Marketplace plans.) Once your taxes have been processed at the federal and state levels, you’ll receive the subsidy as a tax credit. It will either be returned to you, or your tax bill will be reduced by that amount – whichever applies to your situation.

However, if you would have been eligible for cost-sharing reductions, you will not receive these as a tax credit – they are simply lost. Cost-sharing reductions are only available to those who enroll in a Silver ACA plan. C0st-sharing reductions are never refunded or repaid.

How Can I Prevent Overestiming Income for Obamacare?

The best way to prevent over- or underestimating your income for Obamacare is to update your Marketplace insurance.

If you apply and enroll in an Obamacare plan, you will be able to update your income as often as you’d like. If you change jobs, lose a job, or decrease or increase your household size, you should update your information to prevent issues with your tax credits.

When you update your income online, your tax credits will be automatically updated – either increased or decreased as needed. If you used an insurance agent to help you enroll, you can contact them for information on how to update your income.

The agents at CoverMile can help you determine if you qualify for an Obamacare subsidy or other health insurance in Texas. We’ll help you calculate your expected income and choose a plan that fits your family’s needs. If you have questions throughout the year or need to change your information, we are happy to guide you through that process. There is absolutely no cost to work with our team, so call to schedule your appointment today.