(The following story is fictional, but describes a very real scenario)
January 2014. “John,” an employee living in Cypress, TX whose employer does not provide health care coverage, decides to use the Marketplace at healthcare.gov to purchase health insurance for himself. After entering his information, he’s pleasantly surprised to see how affordable his health care options are, and selects a nice Silver plan, $150 per month. “John” is a busy man, so he eagerly signs up for the direct draft payment option, letting his payments come straight out of his bank account.
Fast forward to April 2015. “John’s” income is below the filing threshold, so he elects not to file a federal tax return.
Fast forward again, this time to January 2016. “John” discovers his health insurance company has debited his account for $700. When he calls them, they explain that he’s no longer eligible for the Premium Tax Credit, so his rate is now $700 per month. In addition to the extra $550 he hadn’t planned on spending, “John” now faces $700 per month in health insurance costs to maintain coverage.
Where did “John” go wrong? And where should “John” turn for help? It may not seem obvious, but “John’s” best option is to seek out a CPA.
First, many consumers aren’t aware that if you qualify for the Premium Tax Credit, the Marketplace will, by default, automatically apply it to the premiums you see online – the plan “John” selected had a true cost of $700 per month, but it displayed $150 since the Credit was automatically applied.
Second, in order to remain eligible for the Premium Tax Credit, you are required to file a return, regardless of your income level! When you sign up through the Marketplace, they apply the credit and report it to the IRS – come tax time, the IRS needs a return from you to match up to the credit. If you don’t file a return, you will no longer be eligible for the credit next year.
A CPA can help “John” by filing a 2014 tax return for him and reporting the Premium Tax Credit. Once this has been taken care of, “John” can begin straightening out his health insurance situation, and start receiving affordable health care once more.
From all of us at Edgar & Edgar CPAs, have a Happy New Year! See you in 2016!