Get your health care through Covered California? Beware of this tax peril

By Ana B. Ibarra | CalMatters

Every tax season hundreds of thousands of Californians are hit with an unexpected bill: They owe hundreds of dollars or more to the IRS because they accepted more money in subsidies for health insurance than they were allowed.

The chargeback can sting. Collectively, 415,000 California households owed the IRS close to $690 million in 2021 in charges related to the health care subsidies, according to agency data from the most recent year available. That is roughly $1,662 per person or family. Many people who end up owing money live in lower-income households.

This repayment rule is connected to the federal Affordable Care Act and the state-based health insurance plans it encouraged. Covered California, the state’s insurance marketplace, offers generous premium subsidies to those who qualify based on their income, but people can unknowingly receive too much aid if they underestimate how much they’ll earn the following year or if they lose a dependent and do not report that change.

The federal government collects any “excess” aid when people file their taxes. The government calls this process “reconciliation.”

Ten years after the rollout of the insurance marketplace, many Californians continue to be caught off guard come tax filing time. Often the charges come as a shock.

“They feel like they’re following the rules, they’re getting their coverage. And, they just kind of feel like they’re getting in trouble for doing everything right,” said Audrey Casillas, assistant director of community economic development services at Koreatown Youth and Community Center. Her nonprofit helps local low-income residents prepare their taxes at no cost as part of a Los Angeles County tax assistance program.

The people who receive excess aid are not wealthy. About half of the households who owed the IRS for excess premium subsidies in tax year 2021 earned less than $50,000, according to data from the agency.

Alex Hernandez, an insurance broker in Merced, said most people can avoid this clawback by reporting any changes in income and dependents to Covered California as soon as possible. This way the agency will adjust the amount of premium subsidies a person or family is receiving, and they’ll avoid an unpleasant surprise come tax filing time.

Hernandez tells clients to report all taxable income to the agency— that includes any extras, such as a bonus or significant winnings from a lucky night at the casino.

“Some members who are doing the enrollment themselves think that they need to go by last year’s income, and that’s not always the case,” Hernandez said. People should instead estimate income based on their current situation, he explained.

Don’t wait for open enrollment
Covered California in an emailed response to questions from CalMatters said it sends a notice reminding enrollees to report any changes, such as income and household size, before they sign up for or renew coverage.

“Consumers are reminded throughout the notice to ensure their information is accurate, and states what the tax implications are if information is incorrect,” Jagdip Dhillon, a Covered California spokesperson, …read more

Source:: The Mercury News – Entertainment


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