How to Report Income Fluctuations to Covered California

Posted: September 03, 2014

by Wendy Barnett

When you apply through Covered California for your health insurance, you must indicate what your income will be for the benefit year since the premium assistance that you may receive is based on your annual income.  For many people, especially for those who are self-employed or who are paid by commissions, annual income fluctuates greatly.  So how do you report your income to Covered California when it varies? This is one of the top question our insurance agency receives from clients.

First of all it is important to know how the system is going to work.  The premium assistance that is only offered through Covered California is going to be “reconciled” at the end of each year when you file your IRS tax return. In other words, the amount of assistance you received is going to be compared to the income that you actually made in that benefit year, and depending on whether your income matches up to what you reported on your Covered California application, you may either owe money back to the IRS or receive a refund. So the important thing to keep in mind is that you want to report your annual income as accurately as possible or estimate on the higher end so that you don’t owe any money to the IRS at the end of the year.

If your annual income fluctuates greatly, it is helpful to know that you have the option to receive your premium assistance either in advance as a monthly tax credit to lower your health insurance bill or as a lump sum at the end of the year when you file your tax return.  You can even choose to receive a portion of your tax credit throughout the year.  Using these options helps you to control how much assistance you receive during the year.  This way you can ensure there won’t be any unexpected money owed when you file your tax return. Check Covered California income limits to see income requirements.

What Are Examples of Jobs Where Incomes Fluctuate?

Although more Americans are working at any other time since mid-2007, it is also true that more people are working part-time in jobs with unpredictable schedules. These jobs often require on-demand or on-call hours that change from week to week, which means that earnings can vary enormously.

Some of these positions include:

• Independent contractors
• Commission-based jobs, such as sales
• Self-employed freelancers
• Hospitality and restaurant employees
• Temporary construction jobs
• Temporary manufacturing jobs
• Retail jobs
• Service jobs in areas like home care or childcare
• Seasonal jobs in sectors like agriculture, fisheries or tourism

People who work in jobs with hours that fluctuate dramatically are part of the “contingent workforce.” The number of Americans who involuntarily work part-time has grown by 45 percent since 2007. Although the unemployment rate has substantially fallen since the great recession in the late years of the first decade 21st century, most salaries have not risen due to the vast increase in the number of people who no longer have a steady job.

Fluctuating income is particularly a problem for people in the lower income range. A study of 32 million employees prepared by The Work Number in 2017 found that 80 percent of that group whose incomes were lower than the Federal Poverty Level [FPL] often saw changes in their income of more than 10 percent per quarter.

Just How Much Can a Person’s Income Fluctuate?

A study by the U.S. Financial Diaries Project that looked at 235 low- and moderate-income families, found a one-child California family’s income could range from as low as $1175 a month to as high as $5279 a month. Why such a wide range?

The husband in this family held a steady $400 a week construction job. Occasionally, he would pick up extra remodeling work that added anywhere from $323 to $1588 a month. On occasion, his wife was able to add as much as $1824 a month from picking up part-time work like babysitting and selling clothing, flowers and jewelry. However, during other months, she wasn’t able to add anything to the family income.

Or, consider someone who works in the hospitality industry or for a retail chain like a grocery store. Many employers are reluctant to give their employees 35 hours or more a week because of the additional costs that come with a full-time job, such as benefits. As a result, people’s hours fluctuate wildly. A waiter or waitress or a grocery clerk may only work 20 hours one week, then find themselves scheduled to work close to 35 hours the following week.

This happens for a variety of reasons. For instance, when stores and restaurants and similar operations offer employees such limited hours, they are always on the lookout for another job that offers them better. This means employers go through periods where they are very short-staffed and require remaining employees to work longer hours to cover the workforce shortfall.

In these types of situations, people’s “regular” income can fluctuate wildly. One week they may only clear $250 or so after taxes, while the next week it could be closer to $500 —especially in a job in the hospitality industry were more hours also lead to more tips.

When such broad swings within a family’s income are possible — although not perhaps as substantial as the family mentioned above — it’s imperative that you report any changes in your income as accurately as possible to Covered California to ensure you receive the correct amount of benefits.

What Are the Federal Poverty Levels for 2018?

The Department of Health and Human Services uses The Federal Poverty Level (FPL) to measure whether a family or an individual can receive government-regulated services and programs. If your family falls into the low-income bracket, it’s important to know the FPL for the current year, as it can change annually.

The levels for 2018 are:

• $12,140 for individuals
• $16,460 for a family of two
• $20,780 for a family of three
• $25,100 for a family of four
• $29,420 for a family of five
• $33,740 for a family of six
• $38,060 for a family of seven
• $42,380 for a family of eight

The following Covered California income restrictions apply to adults:

• 0 to 138 Percent of FPL: Qualification for Medi-Cal
• > 138 to 400 Percent of FPL: Qualification for a subsidy on a Covered California plan

The breakdown of the subsidies between 138 and 400 percent of FPL is as follows:

• > 138 to 150 Percent: You also qualify for the Silver Enhanced 94 Plan
• > 150 to 200 Percent: You also are eligible for the Silver Enhanced 87 Plan
• > 200 to 250 Percent: You also qualify for the Silver Enhanced 73 Plan

Information is also available to determine if pregnant women may be eligible for MAGI Medi-Cal and the eligibility guidelines for children for Medi-Cal and C-CHIP.

To qualify for government subsidies, you must purchase your coverage through Covered California, and your annual gross income cannot be more than 400 percent of the FPL. So, let’s say you’re a family of six. That means you can earn no more than $134,960. If you do, you are not eligible for a subsidy.

What Happens If I Overestimate My Income for the Year?

Anytime you file your taxes for a previous year, your income will be reconciled if you have overestimated your income. This means you will receive a tax credit based on your adjusted gross income.

Suppose you thought your yearly household income was going to be $35,000 year, and you used this figure when you applied to receive health care coverage through Covered California. Then, when it comes time to file your taxes in April, it turns out your income was only $25,000 a year. You would receive a tax credit based on the $10,000 difference in your household income.

If you had correctly estimated your household income, you would have received about $500 in tax credits. But since you overestimated your income, you only got around $250 a month. In this case, you would receive a tax credit worth $250 for every month you and your family were on a subsidized health care plan. You can either accept this tax credit as a payment or apply it to any taxes you owe for the previous year.

A word of caution, however, about overestimating your income. If you only report your income once a year and don’t check it quarterly or even monthly for fluctuations, you are costing you and your family income you could otherwise use for necessities like food, shelter or bills. For that reason alone, it makes sense to keep a close eye on your income and report any changes to Covered California.

What Happens If I Underestimated My Income for the Year?

Well, take the reverse of above. When you applied for Covered California healthcare, you estimated that your family income would be $25,000 a year. However, when you do your taxes in April, you discover your household income was actually $35,000 year. This means that you received $250 a month more than you should have. In this case, you would have to reimburse the overpayment for every month you have received a subsidy.

The good news, however, is that there is a limit. If your income is less than 400 percent of the FPL, the amount you must repay is capped. But if you earned more than 400 percent of the FPL in any given year you received a healthcare subsidy, you must repay the entire subsidy.

Therefore, it is critical to report any changes in your family’s financial situation. In one case — when you overestimate — you may not be receiving the amount of subsidy you are due. In the other case — when you underestimate — you don’t want to discover you must make a substantial repayment at the end of the tax year. For most families whose household income depends on one or two low-income jobs, it can be challenging to repay an overpaid subsidy.

For people whose income varies from month to month but it averages out about the same annually, you can take your expected annual income and divide it by 12 to report your average monthly income.  Then, if during the year your income deviates from your average, you can always “report a change.”

A good rule of thumb is to examine your income quarterly, and check to see if your monthly average is similar to what you reported.

For people whose income varies so much that they have no idea what their income will be for the year, then it is suggested that you report your most accurate income on a monthly basis.  On your application you will report what you made last month or last year, whichever is most accurate.  Then you will “report a change” monthly to keep your income updated. We also suggest that you give us a call at 877-752-4737to discuss your income reporting options.  As an experienced health insurance agency we are here to assist you so you can make the best informed decisions about your health insurance.

You are required to report a change to Covered California within 30 days if your income changes enough to impact your assistance.

If you are uncertain about your income figures, it is suggested you contact your CPA or tax preparer to receive advice on how to report your most accurate income.

Let Health For California Insurance Center Help You Find an Appropriate Healthcare Plan for Your Family

The Covered California Health Exchange offers subsidized Obamacare plans for the Golden State. A government agency created to help citizens and legal residents apply for health care coverage, it is a state-run healthcare insurance exchange.

For families or individuals with a household income below 400 percent of the FPL, Covered California may qualify them to receive subsidies that will lower their premiums. Also, if their income falls between 138 and 250 percent of the FPL, Covered California may also qualify them to receive extra discounts that reduce their medical costs.

To find out if you are eligible for a subsidy and also for cost-sharing reductions, check the Covered California income limits. You cannot be receiving health care through an employer or Medicare and also receive subsidies from Covered California.

If you wish to find out more about obtaining health care through the state exchange, you can receive a free quote from Health For California. Or, fill out our easy-to-use application online.