The Health Insurance Tax, Penalty or Refund?

 

The Hidden Health Insurance Tax

A phrase you’re probably familiar with hearing a lot this time of year is Trick or treat. You may have never thought about it this way, but those words relate to taxes as well.

There are multiple tax situations this could apply to, but for now we will focus on health insurance and taxes.

Marketplace insurance (Obamacare) and Medicare premiums are tied to your income, meaning higher premiums for higher income owners.

With Medicare, they just take the premiums from your Social Security check, so for this trick or treat example, we will just be looking at marketplace plans.

Whether you apply online yourself or you’re working with an agent, you’re going to give them what you think your income will be. Sometimes we see know people estimate lower because they want lower premiums. But this is where it’s really key to have a coordinated approach with your health agent and your tax advisor or you could end up being tricked at the end of the year.

What I mean by that is if your income is close to where one of the limits and you estimate it low, you will pay those lower premiums all year but come tax time, and your finalize income is above the level, you end up having to pay the premium discounts they gave you back.

You see,  lower health care premiums are a tax subsidy. So if you estimate low, you’ll be tricked at tax time and you can’t be mad at your tax advisor (unless they told you to estimate low).

Now, the opposite can also be true which most people don’t realize, if you estimate your income higher, and it comes back lower, you’re going to get the tax subsidy for healthcare premiums back.  You will get a tax time treat!

Either way is ok as long as you understand and don’t fell tricked at tax time. Maybe you consider the lower premiums an interest-free loan until take time, or maybe you would rather receive a tax refund, again either way can be ok.

This is really true about many areas in taxes – withholding taxes from IRA distributions or paying estimated taxes when your self employed are just two most common other areas where you can either be tricked or treated at tax time.

Let’s take a quick look at how premiums are determined for marketplace insurance. There are multiple factors that determine the tax subsidy for premiums – where you live, your age, gender and geographic location. After you know what the income limits for you, you can work with your tax person and health advisor to coordinate a plan.

Medicare works a little differently.  While Medicare Part A is always free, Medicare Part B has a cost, it currently starts at $170 a month. However, premiums do go up based on your income.

If you’re single person and have over $91,000 in income or a couple with over $182,000, your premiums will start going up. Not only does Part B premiums go up, but Part D premiums which cover prescriptions, can go up as well.

While ROTH IRA withdrawals are not taxable, in some cases they do count towards your income limits for plans.

It is If you plan ahead, you don’t have to be worried about being tricked at tax time.

This as or your financial life – Cashflow management, (which includes paying for health insurance), taxes, investment positioning and estate preservation (which is even why we have the insurance) is all coordinated and working together.

If you have questions on this, make sure you give us a call and help you make the right choice for you. If you need help choosing a healthcare plan, we have an expert on our team that is here for you!

 

We serve clients in Mineral Point WI, Dodgeville WI, Platteville WI, Lancaster WI, Fennimore WI, Boscobel WI, Richland Center WI, Muscoda WI, Spring Green WI, Mazomanie WI, Sauk City WI, Middleton WI, Madison WI, Fitchburg WI, Verona WI, Mount Horeb WI, Barneveld WI, New Glarus WI, Monroe WI, Belleville WI, Oregon WI, Stoughton WI, Darlington WI, Cuba City WI, Hazel Green WI, Belmont WI, Dubuque IA, Freeport IL

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