A covered California information booth at the California Native American Day celebration on September 22, 2023 at the state Capitol. (Photo by Miguel Gutierrez Jr., CalMatters)
By Ana B. Ibarra | CalMatters
Every tax season, hundreds of thousands of Californians are hit with a surprise tax bill: They owe the IRS hundreds of dollars or more because they received more in health insurance subsidies than they were allowed to.
Taxation can hurt. together, 415,000 California households In 2021, the IRS owed $690 million in health care subsidy payments, according to the agency. That’s about $1,662 per person or family. Many people who receive money live in low-income households.
This coverage rule is related to federal Affordable Care Act And he encouraged state-based health insurance plans. Covered CaliforniaThe state insurance marketplace offers generous premium subsidies to those who qualify based on their income, but people can unknowingly get too much help if they underestimate how much they’ll earn next year or if they lose a dependent and don’t report it. to change
The federal government collects any “excess” benefits when people file their taxes. The government calls this process “reconciliation”.
Ten years after the insurance market became widespread, many Californians are still confused when it comes to tax filing. Often the allegations are shocking.
“They feel they’re following the rules, they’re getting their coverage. “They just feel like they’re in trouble for doing everything right,” he said Audrey CasillasAssistant Director of Community Economic Development Services Koreatown Youth and Community Center. His nonprofit organization helps local low-income residents prepare their taxes for free as part of Los Angeles County Tax Assistance Program.
People who receive too much help are not wealthy. About half of the households that owed the IRS excess premium subsidies in the 2021 tax year earned less than $50,000, according to the agency’s data.
Alex HernandezAn insurance broker in Merced said most people can avoid this rollback by reporting any changes in income and dependents to Covered California as soon as possible. In this way, the agency will adjust the amount of premium subsidies that the person or family receives and they will avoid an unpleasant surprise at the time of tax filing.
Hernandez tells clients to report all taxable income to the agency — which includes any extras, such as a bonus or significant winnings after a lucky night at the casino.
“Some self-enrolling members think they need last year’s income, and that’s not always the case,” Hernandez said. People should assess income based on their current situation, he explained.
Don’t wait for open enrollment
Covered California said in an emailed response to questions from CalMatters that it is sending out a notice reminding enrollees to report any changes, such as income and family size, before enrolling or renewing coverage.
“Consumers are reminded throughout the notice to ensure their information is accurate and told of the tax consequences if the information is incorrect,” Jagdeep Dhillon, a spokesman for Covered California, said in an email.
Of course, people don’t have to wait for open enrollment to apply for changes. Enrollees can report changes at any time with the help of an enrollment advisor or by calling Covered California directly.
“People may need mid-year reminders, if you only get it (notification) once a year, it may be too late,” said. Cynthia Cox, program director at KFF, a health policy organization that conducts polling and research. “Open enrollment is in November, and tax season is in April. It might be a good idea to think about that in July.”
The reconciliation rule also works the other way around. People who overestimate their income and receive less subsidies than they are entitled to can get money back. And for those making less than 400% of the federal poverty level, there is Limits on how much they have to pay IRS to the IRS if they should be owed.
When learning they will be liable to the IRS, some people question whether they should keep their health insurance, Casillas said. But people can also go into debt if they are left without insurance. That’s because California is one of only five states that requires residents to have health insurance. those Those who leave without it may face fines.
Many save money with Covered California
Some people who have run into this issue in the past see it as a trade-off, Casillas said. They pay very little each month for health insurance, but pay hundreds or thousands of dollars when they file their taxes. For many people, what they end up owing the IRS is still less than what they would pay for a full-price health plan or hospital visit, Casillas said.
“We just tell them, ‘Hey, you know what, these things can be unpredictable. You want to save,” he said.
Accurately estimating next year’s earnings can be especially difficult for those who are freelance or employed, making their estimates less accurate, experts say.
“Many people in the ACA market have incomes that can be very volatile. They may be picking up part-time jobs or are self-employed or small business owners,” Cox said.
Hernandez said he advises people enrolled in a Covered California plan to find their own agent and check in with them often. Because agents receive a commission from insurance companies, this service is often free to the public. It’s the best way to stay informed and avoid unexpected bills, he said.
Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a cost they can afford. To learn more, visit www.chcf.org.