I’ve been preparing income tax returns for 10 years as a volunteer for the AARP Tax Aide program. For the most part our customers are very happy with the results of the tax returns that we produce. However, every once in a while a tax payer comes in who is shocked that they owe a significant amount of money and this is a very unpleasant experience for all involved. I am writing to give a major heads-up to low income people who qualify for subsidies under the Affordable Healthcare Act.
For sure, I have no interest in throwing fuel on the fire that is the Obamacare debate. But I am concerned that next year’s tax season will create some very nasty surprises for some people who are receiving health insurance subsidies by way of Obamacare in 2014.
Individuals may have qualified for these subsidies based on their 2013 income or a paystub voucher showing what they earn. Those who provided income verification at or above 138 percent of the official poverty level might have qualified for the subsidies. Most of us are aware the subsidies gradually taper off as income increases, but the kicker is that the subsidies are tentative, contingent on the individuals actually meeting that income level in 2014.
Painfully, if their 2014 income ends up falling below this minimum 138 percent threshold, tax payers will be disqualified from the subsidy and will be required to pay back the entire year’s subsidy at tax time. In some states the extension of Medicaid will provide a safety net for these people but not in South Carolina, which chose not to accept the Medicaid extension option of Obamacare.
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For example, a couple may have had a 2013 income of $22,000 which is just above the 138 percent level and so may have qualified for a total subsidy of $4,200. If their 2014 income actually turns out to be only $20,000, which is below the threshold, that fact disqualifies them for the subsidy and they will then owe the entire $4200 at tax time.
So if you are just above that 138 percent level, please do anything you can to not let your income drop in 2014. I don’t want to be the one to give you the bad news when I prepare your tax return on that day of reckoning early next year.
The writer lives in Myrtle Beach.