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Know your income before signing up for health insurance
February 12, 2016 Jerry Purvis   

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When people ask their tax professional how much income they should declare when applying for health insurance under the Affordable Car Act, the answer is usually … it depends.

“You have to guess what your next year’s income is going to be when you sign up,” said Robin Christensen, Enrolled Agent with Next Generation Tax and Accounting in Gering. “You can do that based on your current year. If you underestimate your income for next year, you might receive more financial help, but would then owe that back to the government.”

The first thing to determine is whether you’re buying your insurance through the “marketplace,” that is the Affordable Care Act administered by the government, through private insurance or through your employer.

“When you sign up with at the marketplace, you’re entitled to receive a premium credit, based on your income,” Christensen said. “That credit is based on what you’re projecting your income to be. If you underestimate, you could owe that premium back to the government. If you overestimate your income, you could receive money back.”

She added the biggest mistake people make when signing up for health insurance through the marketplace is taking the maximum credit allowed and underestimating their income.

According to Christensen, the best thing to do is not take as much premium tax credit as you’re entitled, based on your projection. That’s especially important for the self-employed, those in agriculture production, and others who have cycling income.

“Making income predictions is hardest if you’re self-employed,” Christensen said. “If you’re an employee and receive an annual W-2 tax form, you pretty much know what you’re income will be for the next year, unless you change jobs.”

Penalties for those without health insurance have also gone up dramatically for the 2015 filing season. For 2014, the flat rate penalty was about $95 and this year it’s $325. If your income is high enough, the penalties are based on a percentage of your income.

“The biggest headache with the Affordable Care Act is all the different calculations that have to be done for different categories of employees,” Christensen said. “Once you’ve signed up and your premiums are set, they can’t be changed for the whole year unless you experience a significant change, such as a family death or loss of a job.”

Many younger, healthier people are declining health insurance through the government, opting to pay the penalty because it’s less expensive, for the time being. “It’s not a good policy, but that’s what some people choose to do,” she said.

The healthcare.gov website, which experienced significant problems in its early years, has improved its accessibility greatly. It contains a great deal of information and resources to investigate, which are helpful in making a decision on the best way to purchase health insurance.

“Half the battle is understanding what minimum coverage you must have and getting the right insurance,” Christensen said.
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