2013
Let’s assume you are a family of four and your household income is $65,000 a year; above average, but who couldn’t use more money?
You are seeking health insurance so you go shopping in the marketplace and find, based on your income, your federal tax credit is $4,028 per year (which covers 41% of the overall premium in NJ). Not a bad deal so you sign up for 2014.
In February your wife tells you she has good news (no, not that good news); she has found a part-time job and will earn $15,000 in 2014 – hey, it’s off to DisneyWorld!
Oops, now that your income is $80,000 and not $65,000 your tax credit for health insurance is $2,151 per year (which covers 22% of the overall premium).
Because you elected to have your credit applied to your monthly premium, when you file your 2014 income tax you will owe the IRS $1,877. If you elected to receive the credit at year end, you will simply receive less.
Needless to say, any unanticipated increase in your income (a raise, overtime, bonus, promotion) will trigger this event.
BEWARE!
I have no idea why ACA crafters chose to apply credits in this way because the possibility for confusion and unexpected surprises is great. In the case of Medicare Part B income based premiums, the calculation is based on your actual tax filing two years before the current year. For example, the 2014 premium is based on the 2012 tax return. That way there is virtually no chance of a retroactive change. In the final analysis does a one year delay matter when you consider the much easier process?
QUINNSCOMMENTARY 
diddo here…..retroactive changes, massive sticker shock re premiums,unaffordable deductibles and so it goes? What’s next?
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Let’s say
Person with family of four and $35,000 in income, finishes gead school and gets Jon paying $100,000 starting 2/1. Income in 2014 of $94,000. Gets a $14,000 credit on coverage costing $15,000, where ends up only entitled to credit of $5,500. Why does the statute limit IRS collection to $2,500? Why does it encourage people to lie?
Or how about a single person in Texas earning $11,400 a year. Not eligible for any taxpayer subsidy unless the lie and claim $600 in “babysitting” income! Then, they get $4,000 in tax subsidies – and whose to know now that the $600 reporting requirement has been eliminated?
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The idea of applying the subsidy monthly is to reduce the monthly payment towards health insurance in the here and now. This has also been the system with the earned income credit where an employer could increase an employee’s weekly paycheck by the anticipated amount of the credit. At the end of the year the credit and the advanced payment balance out unless there are unanticipated changes like additional income. To many people it’s not the big picture that matters, it’s what the monthly payment is that’s important.
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The widespread fraud of EITC is well documented. Or , how about a mobile phone. Food stamps, anyone? Or, Medicare and Medicaid. All ridiculous failures at managing spend and preventing fraud? What’s one more if you are not paying the taxes. … Rent seeking by vote!
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How did we go from a question on taking a subsidy credit on a monthly basis to a rant on fraud in the earned income credit and then on to free phones and food stamps? I agree that there is fraud in all government programs and I would like to see it go away, but let’s stay on topic.
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Just confirming that the overpayment risk dick warns of was intentional, part of the statute, the design, and anticipated – hence the statutory limits on maximum collection.
My point was that, as you point out, fraud In all govt plans – I just think it needs to be said that fraud, waste and abuse is intentionally part of ppaca, and in many cases here … Legal. I think of it as a new low… Worse than witch, cell phones, Medicare and Medicaid.
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