Health subsidies could trigger surprise tax bills

Changes in income pose p otential problem

By Stephen Ohlemacher

Associated Press

WASHINGTON — Mil­lions of people who take advantage of govern­ment subsidies to help buy health insurance next year could get stung by surprise tax bills if they don’t accurately project their income. President Barack Obama’s new health care law will offer subsidies to help people buy private health insurance on state-based exchanges if they don’t already get coverage through their employers. The subsi­dies are based on income. The lower your income, the bigger the subsidy.

But the government doesn’t know how much money you’re going to make next year. And when you apply for the subsidy this fall, it won’t even know how much you’re making this year. So, unless you tell the government otherwise, it will rely on the best infor­mation it has: your 2012 tax return, filed this spring. What happens if you or your spouse gets a raise and your family in­come goes up in 2014? You could end up with a bigger subsidy than you are entitled to. If that happens, the law says you have to pay back at least part of the money when you file your tax return in the spring of 2015.

That could result in smaller tax refunds or surprise tax bills for mil­lions of middle-income families.

“That’s scary,” said Joan Baird of Spring­field, Va. “I had no idea, and I work in health care.”

Health care provid­ers, advocates and tax ex­perts say the vast major­ity of Americans know very little about the new health care law.

A draft of the applica­tion for insurance asks people to project their 2014 income if their cur­rent income is not steady or if they expect it to change. The application runs 15 pages for a three­person family, but no­where does it warn peo­ple that they may have to repay part of the subsidy if their income increases. There’s another wrin­kle: The vast majority of taxpayers won’t actually receive the subsidies. In­stead, the money will be paid directly to insur­ance companies and con­sumers will get the bene­fit in reduced premiums. The subsidies, which are technically tax cred­its because they are ad­ministered through the tax code, will help low­and middle-income fam­ilies buy health insur­ance through the state­based exchanges. Under the new law, nearly every American will be re­quired to have health in­surance starting in 2014, or face penalties.

The enrollment sea­son starts Oct. 1.