This is both the trickiest and most important part of comparing health plans these days.
It can mean the difference of 1000's of dollars per year. Found money.
On the flip side, roughly 50% of the applications that we see submitted directly with Covered Ca have serious issues.
We get the calls daily where:
There are about 4-5 "gotchas" on the direct app which can blow apart the tax credit calculation.
On top of that, many people don't realize that a much richer version of the silver might result in a $100 difference in income estimate.
It's the old story of you don't know what you don't know!
Let's see if we can make this easier and offer expert help if it all seems too difficult.
We'll cover these topics with a focus on the tax credit side of things:
Let's get started.
Let's get started...step by step.
Before we jump into the components for calculation, why even bother with this?
Lots of found money potentially! That's why.
The tax credit is really the crux of the original ACA healthcare law.
If your income falls within certain ranges (you can request a current income chart from us here), you can get tax credits which are subtracted right away from your monthly premium.
When we enroll you in the system, an income estimate is entered for the year in question.
Keep in mind that past year incomes don't matter...it's the current or in the case of open enrollment, the following year estimate that matters.
When you get your bill from the health insurance carrier, the tax credit is already subtracted.
You can also choose to take some or all of it at a tax-filing time instead.
We can help with that adjustment for people who don't want to have to pay back extra tax credit because income comes in higher than expected.
This tax credit applies to all plans (except the 'catastrophic' option) uniformly.
In some cases, the tax credit may eat up all the premium.
We see this more with people in their 50's or 60's. Age really affects the tax credit piece.
This means that a 60-year-old will get a much larger tax credit than a 30-year-old at the same income.
You can quickly run your quote with tax credit here.
In order to do so, let's look at the two main pieces:
This is where many people get stuck.
Household is defined as everyone that files together on a 1040 tax form for the year in question
For example, if we apply for 2024 coverage, it's the April 2025 tax filing make-up that matters.
When there are changes in households (marriage, birth, divorce, children not being claimed, etc), it can get complicated.
Check with us for these situations to make sure you both getting the most tax credit and also avoid having to pay it back at tax time.
Keep in mind that we want to enter the full household number even if they're not all enrolling.
This total number affects the tax credit and options for those who are enrolling.
Again, if something looks out-of-whack, let us run the quote for you here.
A few more key concerns:
Let's look at the hardest part.
This is the most important piece and also the one that's usually wrong when people enroll.
There are so many different wrinkles to people's income that we'll give a general overview and you can reach out to us regarding your specifics...again...no cost for our assistance as Certified Covered Ca agents with 1000's of people enrolled.
We're trying to estimate out AGI on the 1040 tax form for the year that we're enrolling.
Generally added to this number is the following:
Otherwise, the AGI is a solid estimate.
The stimulus checks would be added to this number but not extended (federal) unemployment from Covid.
Where we usually see an issue is with self-employment income.
Again, the AGI captures this but it's your net business income (after business expenses) while also deducting health insurance and half of the self-employment tax.
There are other deductions (HSA, moving, etc) that come off as well but those will be captured in the AGI.
For w2 income, it's gross (total) income.
In terms of who to include, it's all the income that will flow into the one 1040 even if they're not enrolling.
We also see issues when people get married mid-year and find out that now, it's the total household income at play which may mean they have to pay back some or all of their tax credit when filing jointly.
This brings up a good question...
This is very important as it can you're either not getting the full tax credit or you'll have to pay back some or all of it the following year.
We get calls from people around April who find out they owe the IRS $10K or even $20K due to this.
Especially as we get older (50's and 60's) where the tax credit can be very big.
Generally, there are two things we need to update when they happen to avoid these problems.
For the latter, generally, if we see a change of more than 10%, we should update the system.
Keep in mind this can go both ways!
Some people are not getting the full tax credit monthly as their income will end up lower than they estimated.
This isn't too terrible since you'll be able to recoup it the following April at tax time but this might mean you're missing out on the richer set of benefits (enhanced silver options).
On the other hand, if our income goes up, we may have to pay back some or
all of the received tax credit at tax time.
Where we generally see issues is something like where a single person gets tax credits based on their personal income, gets married mid-year, and never updates the account.
When they file taxes, it will now look at joint income for the whole household.
Again, if you have big life changes occurring, reach out to us so we can make sure your account or enrollment is correctly set up.