Must we apply for an ACA premium subsidy UP FRONT on a health exchange to receive a credit on 2014 tax return?

Due to a rather unique financial situation which is too complicated to go into here, my wife and I would like to buy health insurance on our state's ACA exchange but NOT apply for premium assistance (a subsidy) up front.  We'd rather just pay the full monthly health insurance premium in 2014 and later apply for a possible credit on our 2014 Federal tax return.

When I asked a customer service agent at our state's ACA exchange about doing this, I was told that in order to later claim a subsidy credit on our Federal tax return, we MUST apply for premium assistance up front when we enroll for health insurance on the exchange.  We would then have the option of declining to receive all or part of any subsidy we qualify for.

Can anyone confirm this is correct?

Thank you!
  • I suppose you could overestimate your anticipated lottery winnings for the year . Or realized capital gains.
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You have the choice of (1) having the Premium Tax Credit applied against your monthly insurance premium, or (2) getting it as a lump sum when you file your 2014 income tax return in early 2015.  In either case, a reconciliation is done when your return is filed.

http://www.irs.gov/uac/The-Premium-Tax-Credit
  • Thank you SweetieJean.  I understand the reconciliation process as I've scoured the IRS web site trying to find an answer.  However, as I tried to explain in my question, I need to nail down whether or not we need to actually APPLY FOR a premium tax credit at the time we purchase the insurance (whether or not we actually accept a credit toward offsetting our premium at that time), in order to still qualify for a tax credit on our 2014 tax return.

    Currently if we go to our exchange but decline to provide any financial data, we aren't offered the opportunity for premium assistance.  We'll be required to pay the full premium amount.  Under this scenario, I need to make sure we'll still have an opportunity to apply for the premium tax credit on our 2014 tax return even though we didn't apply for any assistance up front.

    I can't figure out the answer from reading the IRS's final regulations on the premium tax credit which I found here:

    http://www.gpo.gov/fdsys/pkg/FR-2012-05-23/pdf/2012-12421.pdf

    Thanks again!
  • SJ:  Not sure this really answers them...do we really know what the actual application process is for the subsidy?
    And it could vary by state vs Fed exchange.

    gyropilot says they were told they should fill out the subsidy info, but that they can reject the up-front subsidy after they apply.  That would make me nervous about whether I would be properly be given the option after applying if I wanted to pay up-front.  At what point in the application process do I get to select my choice to defer the subsidy?
    .
  • Well, the ACA website says this:
    "Until you fill out a Marketplace application, you can use the Kaiser Family Foundation calculator for a rough estimate of how much health insurance may cost you in 2014." and  "You won’t be able to get your exact costs for a specific plan until you fill out a Marketplace application and provide details about your income and household."
    https://www.healthcare.gov/how-can-i-g"et-an-estimate-of-costs-and-savings-on-marketplace-health-insurance/

    Recent news reports about the Washington State ACA website said that applicants were asked for their monthly income, and then quoted Premium Tax Credits accordingly.  However, when this info was transferred to the Feds, they were expecting annual incomes, so the subsidies  were wrong. Thus, i suspect each state is different.
  • ST and SJ,

    My wife and I are sort of caught in a classic Catch-22.  Here are some details on what's triggering my question.

    We are indeed WA state residents and are using our state's exchange.

    Our 2012 MAGI, which is the data the Federal data hub has, far exceeded the cutoff for a premium subsidy.  This year we left our jobs and do not intend to go back to work.  We're too young to qualify for Medicare.  We sold almost everything, became full-time RV'rs, and are currently living off our savings, interest, and dividends.  Next year we'll start taking early withdrawals from our IRA's so our 2014 MAGI will be within the range of a premium subsidy.

    When we go to the exchange and answer financial questions based on what we EXPECT for 2014, a flag is triggered due to the huge difference between our estimate and the 2012 data in the Federal Hub.  I believe the tolerance is 10%.  Because we exceed this, we're asked to provide verification of our income estimate, which we can't yet do because we haven't started taking withdrawals from our IRA's.

    If we try to redo the financial data we provide based on our 2012 income (so it'll more closely match the Federal Hub and eliminate the red flag) it creates an entirely different set of problems.  In order enter our 2012 income, the exchange requires information about our employers and related questions about health insurance affordability, etc., but we're not employed any longer!

    Rather than struggle with this mess, we've decided we'd just forgo applying for a subsidy on the front end, pay the full premiums in 2014, then apply for a subsidy when we file our tax return in early 2015.  Obviously we don't want to jeopardize being able to claim a credit on our 2014 tax return.

    I hope that helps explain things.

    Thank you!
  • I used the federal site for healthcare. It asked me for my anticipated income in several categories. Then it calculated a subsidy and asked me if I wanted it up front or when I file and it asked me if I wanted to take the whole subsidy up front or a percentage.  But I don't know what would happen if you did not get a subsidy at first but then your income changed so that you were eligible. There is a way to give them more info along the way,so you can change info during the year.
  • As the IRS link that I gave you says, you can also notify the Exchange of income changes that occur during the year. However, your idea is fine, too. Others, especially self-employed folks, are in similar situations.  I would just overestimate your 2014 income.
  • I STRONGLY suspect that the customer service agent is wrong.  I've read the section on the Premium Assistance Credit quite extensively (see links below), and I don't remember seeing such a requirement.  It also doesn't make sense.

    HOWEVER, if your income will be below 250% of the Federal Poverty Level, you ALSO may qualify for "cost-sharing reductions".  You probably DO need to apply for this when selecting your insurance from the exchange.

    http://www.law.cornell.edu/uscode/text/26/36B
    http://www.ecfr.gov/cgi-bin/text-idx?SID=93c1aabdb9e9232f4e7158f03ae26dbe&node=26:1.0.1.1.1.0.5.53&rgn=div8
  • Thanks TaxGuyBill,

    I agree that it doesn't seem to make sense.  I'll check out the references you provided to try and find something concrete.

    We are aware that by not applying for a premium subsidy on the front end, we'd be foregoing any cost-sharing reductions we might be eligible for.  Since we don't expect to have much out of cost expenses in 2014, we aren't too worried about it.

    Best regards.
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Hi guys, you all have pinpointed the mechanics of how to get the subsidy and the income issues related to it, but you need to also focus on the language you are seeing throughout the premium tax credit document the IRS provided -
http://www.irs.gov/uac/The-Premium-Tax-Credit

Here's the deal.  The language over and over states that you MUST buy health insurance through the Marketplace, and this is the trick.  The "Marketplace" is only accessible by going through the healthcare.gov website and filling out the 45 minutes worth of questions.  Effectively, you are looking for plans that are ON EXCHANGE.  If you get through the 45 minutes of questions and you even if you don't qualify for subsidies, you need to select an ON EXCHANGE or IN MARKETPLACE PlAN as these are the only plans that are eligible for retro-active tax credits in 2014 when you file your income tax return showing a much lower income than you did in 2012 or 2013.

If you apply directly through a health insurance company or a health broker's online link AND don't take the option to be redirected to the healthcare.gov site than you are most likely not going to be shown ON EXCHANGE plans.

Why do I know this, because I'm an agent and I've struggled with this process with all of my new clients that are eligible for subidies and yet can get through the mess of the .gov site to be re-routed back to us.

Absolutely do not buy off exchange as you'll not be able to claim a retroactive tax credit.


  • Sorry, just a clarification, the state run exchanges are also places for you to obtain the ON EXCHANGE PLANS.  I run an agency in a state that did not opt in to run their own exchange so my answer was based on what we do. We must us the Federal healthcare.gov site for obtaining subsidies.
  • Thanks for the reply Tom, but we (me for sure) already understood that to qualify for a premium subsidy you must purchase a health insurance plan though an exchange.  My question was specific to WHEN must I apply for a subsidy (up front or retroactively) and still remain eligible for a tax credit.

    In the case of the WA state exchange, the enrollment process literally only took me a few minutes when I indicated I didn't want to apply for a premium subsidy as there were no lengthy income questions to wade through.
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