If you are a recipient of any level of premium assistance for your health insurance acquired through the federal marketplace, you are in for the fun of reconciliation as a part of your tax return. This process takes a look at what you (and the government) paid for your health insurance premiums during the tax year 2015. Then, based on your actual modified adjusted gross income – there’s a mouthful – you will figure out how much of your income should have been spent on your share of your health insurance costs.
The point is to determine whether you – or the government – paid too much of the premiums or whether you each paid your respective shares as determined under the laws. You can see where this is going, if you had more income than you expected when you obtained your insurance, you will likely be required to pay back some of the premium assistance you received. In fact, if your income exceeded four times the federal poverty level (as defined by the IRS) you will have to pay back ALL of the premium assistance you received. That could be painful.
Of course, there is the possibility that you had less income than expected when you applied for and received health insurance through the marketplace. Here, the amount you might receive in addition to premium assistance paid during the year will be determined with reference to your share of the premiums based on actual income. However, additional payments due you will be determined based not on the actual insurance coverage you obtained but on the cost in your area of the “second lowest cost silver plan” which could be more or less than what your coverage was.
Typically, persons receiving premium assistance for their health insurance will be under the age of 65 since most persons 65 and older are under Medicare. If you are also 62 or older and are receiving Social Security, be aware of one trap in this health care reconciliation. Your untaxed Social Security benefits will be included in your modified adjusted gross income for purposes of determining your share, and perhaps even your eligibility, for premium assistance.
Bottom line: if you received premium assistance, you will need to go through the reconciliation process as a part of your income tax return. This could be good news or bad news, depending on your situation.