Confused by California’s health insurance exchange? Here is help
If you go online to shop for health insurance through California’s exchange, Covered California, you may feel befuddled at times.
An estimated 1.9 million Californians could qualify for a subsidy or tax credit, according to the Kaiser Family Foundation. But to determine whether you’re among them and apply, you’ll need to report your income and the size of your family on the application.
It seems straightforward enough. But many consumers are finding that the process can get complicated. It turns out that it’s not always easy to answer questions about household income.
Covered California said Thursday that its two most frequent inquiries involve issues of income.
Tax preparer H&R; Block has had the same experience. “I’d say the No. 1 question we’re getting involves various components of income. People want to know, is this going to count or is that going to count?” said Jackie Perlman, lead tax analyst with the Tax Institute at H&R; Block.
Here is how experts answer some of the more common tax- and income-related questions consumers have when applying for Obamacare health insurance policies.
When I report my income, what exactly should I include?
For most people applying for insurance under the Affordable Care Act, household income will be the same as what the IRS calls adjusted gross income.
In short, Perlman says, “that is everything that is on Page 1 of your tax return. It is your gross income, wages, self-employment income, capital gains, everything on your return less adjustments or above-the-line deductions.”
If you’ll make about as much money next year as you did last year, an easy way to find your number is to look at your last tax return. If you file using tax form 1040, you can find your reportable income on line 37, said Betsy Imholz, special projects director with Consumers Union. “If people need something quick, that can be helpful,” she said.
Those who use tax form 1040A should look to line 22. Income can be found on line 4 for those filing taxes using form 1040 EZ.
Also helpful is a document created by UC Berkeley’s Labor Center that summarizes federal regulations in an easy-to-understand grid. It can be found at laborcenter.berkeley.edu/healthcare/MAGI_summary13.pdf.
What about Social Security benefits?
Most recipients of Social Security should be getting their healthcare benefits through Medicare. But for those who don’t, consider this: Social Security benefits count toward your total income when determining whether you qualify for a subsidy, and it should be included when you report your household income.
Social Security Disability Insurance is counted as income. Supplemental Security Income and veterans widow benefits are not.
How about my investments?
No, the value of your assets and investments is not included in the calculation as part of your income.
“We’re only talking about what is on the tax return,” Perlman said. Your home, IRAs, 401(k) accounts and stocks should not be reported as part of your household income when applying for insurance through the exchange.
Perlman points out, however, that any income you get if you sell stock or begin to draw income against your investments — not your account balance — must be reported.
Who in my family do I include when reporting the size of my household?
Think of your household as everyone in your tax family, Perlman said. “There can be people literally living in my house, but I don’t care about their income. The converse is true too. There can be someone who is not living in my house and I do have to care about their income,” she said.
For example, even though your brother-in-law has been camping out on your couch for the last six months, unless you claim him as a dependent when you file taxes, he’s not considered a part of your household.
However, your son at college in New York, whom you do claim on your taxes, is considered part of your household. And if that son happens to hold down a part-time job while attending school and earns enough money to file a tax return, you’ll need to include his earnings as part of your total household income.
What tax year are subsidies based on?
When you enroll in the marketplace, you are asked to report what you expect will be your income in 2014.
I’m self-employed and my income fluctuates. How can I accurately project my earnings for next year?
If you don’t get a steady paycheck, you’ll be asked to make a good-faith estimate.
Projecting next year’s income can be more art than science, experts admit. Imholz suggested that consumers evaluate last year’s tax return, this year’s income and any other known factors that might affect income in 2014 to come to a reasonable estimate.
Am I going to owe money on taxes if I estimate my 2014 income incorrectly or if I get a raise next year?
You could. People who earn more income than what they report and receive subsidies as a result will be required to pay back the excess amount at tax time in 2015.
Those who earn less money than expected — and therefore don’t receive as much financial help as they could — can expect a tax refund of the difference.
You can avoid a tax bill by reporting any income increases to Covered California during the year. In the same way, you should report a big drop in income that might increase your subsidy during the year. Imholz said that as a rule of thumb, a shift in income of 10% up or down should prompt consumers to report the change.
Do I have to report my spouse’s income if we file taxes separately?
Yes, you do. And if you want to take advantage of a subsidy, you’ll have to file taxes jointly in 2014, said Laurel Lucia, a policy analyst at the UC Berkeley Labor Center.
Lucia said couples who haven’t filed jointly in the past simply need to report to the exchange that they’ll do so in 2014.
I heard that tax penalties were delayed. Does that mean I don’t have to buy insurance?
Tax penalties for individuals have not been delayed. Individuals who don’t have health insurance coverage in 2014 will pay a penalty of $95 or 1% of their income, whichever is greater. The bill will come due when you file taxes in 2015.
What consumer resources can help me sort out my questions?
Covered California offers a list of organizations throughout California providing help: https://www.coveredca.com/enrollment-assistance/. It also offers a consumer help line: (800) 300-1506.
H&R; Block offers free assistance signing up for health insurance: https://www.helpth.com.
Zamosky is the author of a new book, “Healthcare, Insurance, and You: The Savvy Consumer’s Guide.”
