Before the Holidays Are Here: Check Your Annual Income Reported to Covered California

Posted: October 16, 2015

by Wendy Barnett

As we enter into fall, we start gearing up for cooler weather and the end of the year… Holidays. This can mean stocking up that wood pile in preparation for a warm fire on a cool evening, shopping for a couple of new sweaters to add to a fall wardrobe, or maybe even experiencing a craving for pumpkin spice lattes or pumpkin pie.  But this year, if you are one of the hundreds of thousands who are now receiving a tax credit through Covered California, it will be important to use this time of the year to do an annual income check, like a self-audit, of the income you reported to Covered California. 

If you are receiving tax credits through Covered California, you need to be very aware of your annual income as the year‘s end approaches. A slight change in income could make a huge difference on your tax return. 

Maybe you’re having a really good year in your self-employed business, or as an employee you received an unexpected raise, or your boss is just offering you extra overtime during the holiday season.  While extra income is usually welcomed with open arms, you need to be aware that if your income exceeds the amount you reported to Covered California, you may be in for a very unwelcome surprise.  As your income goes up, you qualify for less assistance, and if you haven’t reported this income change to Covered CA, then you may have to pay back the difference when you file your 2015 tax return.

John and Susan Brock have 2 children and run their own business in Santa Cruz.  When they applied for health insurance for 2015 on Covered California, they reported their adjusted gross income as $95,399 and were thrilled to receive an Advanced Premium Tax Credit (APTC) of about $980 per month. They chose a Bronze 60 plan and happily paid $330.00 per month for their family of 4 to have a basic health insurance plan. However, because John and Susan’s income is right on the borderline of the 400% Federal Poverty Level cut off for assistance for a household of 4, they are in a very precarious position.  If at the end of this year, the Brock’s income ends up being just $1 more, putting them at the cut off of the $95,400 threshold, they will have to pay all of their APTC back come tax time – that’s a total of $11,760!

Unfortunately, people like the Brocks, whose incomes are at the borderline of assistance, are in the highest financial risk of having to pay back their APTC. This is because there is no cap on the amount of tax credit that has to be repaid for households making over 4 times the federal poverty level. To better understand how tax credits work and how they might have to be paid back, check out this IRS information webpage on premium tax credits.

To avoid such a terrible surprise when you file your taxes, check your current income against Covered California income limits and see if you are going to hit or miss the mark.  Know what the Federal Poverty Level limits are for your household by looking at the 2014 FPL chart that was in place at the start of the 2015 Open Enrollment:

2014 Federal Poverty Level Chart

If you’re self-employed, you may want to speak with your accountant or tax preparer to get advice on how to legally minimize your income. If you are an employee, you might want to turn down those overtime hours that your boss offered you.  But be sure not to wait, now is the time to do that annual income check, so you still have some options to keep your income where you want it to be. And remember, as your health insurance agent, we’re always here to answer any questions you may have. You may reach us at 1-707-571-7590.

Please Note: The above blog is intended as general information and not tax advice. Individuals should seek the advice of a tax professional for the most up to date information and advisement concerning their specific situations.