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I underestimated my income to get a subsidy. What will happen?

woman filling out income form

Reader Q+A

Last year when I signed up for health insurance, I was out of a job and only making a little money working retail. I only pay $20/month for my health plan because the rest is subsidized because of my income. Here’s where it gets tricky. I got a job in January that pays $40,000/year and I'm just now realizing that I way underestimated how much money I would make this year. What's going to happen?

Way to go on the new job!

Try not to worry. You aren't the only one who underestimated your income last year and received a subsidy. For many, it's hard to know when a new job will come or what income will look like next year. The government isn't going to come after you, but you will have to pay back at least some of the subsidy on your taxes in 2014. 

According to NOLO, if your 2014 income is below 400 percent of the federal poverty level, there is a cap on the amount you’ll have to pay back, even if you received more in assistance than the amount of the cap. However, at higher income levels, you’ll have to pay back the entire amount you received.  

Here is a chart that is beneficial for anyone who has underestimated their income and received a subsidized health plan. Use this chart to estimate how much money you'll have to pay back, but please note that the exact numbers will be different depending on your zip code. For a more accurate amount, plug your income and zip code into this subsidy calculator to figure out your percentage above poverty (this percentage will be different based on your zip code).  

household income

Here are the steps to take if you've underestimated your income:

1. Log in to your Healthcare.gov account (or your state marketplace account) and update your information. 

If your employer offers a qualified group health plan, then you'll need to update this detail in your account because you won't be eligible for a subsidy even if your income is low enough. If your employer doesn't offer a group health plan or offers one that doesn't meet the qualification requirements, update your income information to correctly reflect what you will earn this year. Be sure to include all of your income, not just what your employer is paying you. 

2. Calculate how much you will owe on your 2015 taxes (and save accordingly). 

Now that you've updated your information in your Healthcare.gov account, you will know how much your health plan should have cost you this year. Let’s say it’s $135. Take $135 (the monthly amount) and subtract $20 (the amount you did pay each month). Then, multiply $115 by the number of months you weren't paying the full (or close to full) price for your health plan. Let’s say you weren’t paying full price for nine months. Now, you are looking at $115 X 9=$1,035. That number represents the most you will have to pay on your taxes come April. Now, check the chart above to see if you might be on the hook for less.

The amount one could owe the IRS can be anywhere from just a few hundred dollars to over a thousand. After estimating how much it will cost you, start saving to prepare for a visit from the tax man. 

Fortunately, there won't be any repercussions other than having to pay back the subsidy. As healthcare reform continues to evolve, some of the way underestimating income is handled may change. Regardless, it's important to correctly estimate your income (if possible) so you don't acquire unwanted expenses. 

Health insurance can be confusing and there is a lot of conflicting information available. Our mission is to be your most trusted advisor when you navigate these difficult scenarios. We'd love to answer your questions, so please leave a question in the comments below or email us at marketing@bernardhealth.com

We look forward to hearing from you! And as our teachers told us, there are no stupid questions. 

If you enjoyed this post, you may also like Do I qualify for a subsidy?

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