How your income affects how much you pay for your health insurance? How Coronavirus Aid, Relief, and Economic Security (CARES) Act payments may affect how much you pay for your health insurance?
Important information about countable income that affects those who are enrolled in programs providing financial help for health insurance coverage.
In this article, we will go over various income sources that you have to report when applying for a subsidized health insurance plan. This is very, very important to know in order to avoid paying back the advance premium tax credits when you file your tax return! Correct income reporting determines the eligibility for certain subsidies, or advance premium tax credits or discounts whatever you want to call it.
Why this is important, is — because if you don’t estimate correctly your income or if you don’t report certain income or you report the income that you are not required… this will result in incorrect subsidy calculation and you can either have to pay back the APTC (or the subsidy) at the tax time or you end up overpaying for your health insurance. That is why it’s very, very important to calculate and estimate it correctly in order to avoid surprises at the tax time.
You can look at your tax return, form 1040, and find the AGI — adjusted gross income! This is the most accurate income that would need to be reported on your health insurance application; but keep in mind, that at the time of application you don’t know you AGI since you will be doing the taxes 1 year from now, so do you best estimate to project this income!
Do you have to include unemployment income approved by CARES Act?
The best way to answer this question and illustrate how all this works is via an example to see how the correct estimation of income affects how much you pay for your health insurance and how the new stimulus payments approved by the Coronavirus Aid, Relief, and Economic Security (CARES) Act affects how much you pay for your health insurance :
Let’s say that we have someone who is 30 years old, living in San Francisco California employed and making $3,000/month.
This person applies for health insurance during the open enrollment (and has no idea about how the COVID would turn the world upside down yet). So, based on these estimates, here are some health insurance options that this person qualifies for:
As you can see, based on the annual estimated income of $36,000 this person qualifies for up to $250.62/month in advance premium tax credits. This amount reduces the total premium that this person would otherwise have to pay for health insurance. Let’s say that this person selected Kaiser bronze plan and has been paying $119.65 each month. So, no matter what plan this person selects, the discount (if you may call it this way) would be $250.62 and it’s based on the income, age, and zip code reported at the time of application.
That’s it. It’s so simple…
Until it’s not…
So, what happens next… the Coronavirus hits and this person loses their job. Now, this person has no job and starts receiving unemployment benefits starting April 1, 2020… so, how in the world would we know what the estimated income would be?
The unemployment benefits estimated for this person would be $450 per week from the State + $600 Federal, so, total per month now would be $4,200/month. This is higher than the salary, so it needs to be updated.
In this case, we would have to report the income change in CoveredCa.
Here is the math: (estimated)
January — March = total prorated income from job $9,000
April — July = total unemployment = $16,800
What happens next?
Well, let’s assume this person goes back to work in August keeping the same salary at $3,000/month.
August — December = total prorated income from job $15,000
So, in total this person has made $40,800 per year. Which is higher than they previously estimated. At this income level, the subsidy is $200.18 per month.
If this person does nothing during the year, when they file taxes they will have to pay back the difference which is roughly $50 per month. If we multiply that amount per year, we have about $600 difference that this person needs to pay back for the advance tax premium they received. Again, there is no penalty or extra fee if you don’t update your income on time, but the thing is that you have to pay back all this amount at once when you file taxes, and that’s not easy or desirable…
The other way could be true as well. What if you overestimate your income and have to pay more each month for your health insurance? If you don’t update your income during the year, you will see a credit when you file taxes.
So, make sure to correctly estimate your income, or keep in touch with the insurance agent that manages your exchange health insurance account. If you don’t have an agent, you can delegate me in the CoveredCa and I can help you figure all this out! Remember if you need help, please feel free to reach out! I will gladly help!
In particular, the new stimulus payments approved by the Coronavirus Aid, Relief, and Economic Security (CARES) Act affects those people who are receiving the unemployment benefits + the $600 additional unemployment and this amount might be higher than a person was making while working full time before losing their jobs (as we saw from the example above!) . Again, it sounds strange, but if a person was working full time and making $3,000 per month, now this person receives over $4,000 unemployment benefits each month. This is higher than previously estimated, so this person needs to update the income now, in order to avoid repaying the extra advance premium tax credits at the tax time.
As you can see, it’s very important to enter all income correctly at the time you apply for health insurance.
What income needs to be included on CoveredCa application?
Let’s go over various income types that are required to be included when completing the CoveredCa application:
EMPLOYMENT & SELF-EMPLOYMENT INCOME
Tips, wages, pay, salary, bonuses
Own business, freelance, contract, trade work
Foreign Earned Income
Taxable and nontaxable, see IRS Form 2555
Farming or Fishing
Income from farming or fishing
GOVERNMENT & ASSISTANCE INCOME
Social Security Retirement
Benefits paid to people 62 years and older
Social Security Disability
Benefits paid to disabled people under 65 years old
Social Security Survivors
Benefits paid to the surviving family of a deceased worker
Federal or state government unemployment income, and State Disability Insurance (SDI) you get in place of unemployment benefits
Jury Duty Pay
Money earned serving on a jury
INVESTMENT & INTEREST INCOME
Income from the sale of property or an investment
Taxable and nontaxable, see IRS Form 1099-INT
Ordinary or Qualified Dividends
Regular income from owning stocks, see IRS Form 1099-DIV
Other Gains or Losses
From the sale of property or other investments, see IRS Form 4797
Retirement or Pension
The income you get from retirement plans including 401k, 457, 509, Taxable IRA and Keogh
Railroad Retirement Benefits
Taxable and nontaxable, see IRS Form RRB-1099
EDUCATION SCHOLARSHIPS, AWARDS & GRANTS
AmeriCorps State/National Stipend & Education Award
AmeriCorps National Civilian Community Corps Stipend & Education Award
AmeriCorps Vista Stipend & Educational Award
Scholarships, Awards & Fellowship Grants
OTHER TAXABLE INCOME
Rentals / Royalties
Income from real estate or other property / Income from the sale or use of your work
Debt forgiven without asking for anything in return
Income awarded by a court ruling
Taxable Refunds / Credits / Offsets
State or local tax refunds, credits or offsets, not your federal tax return
If you get alimony payments from a spouse or former spouse, enter that income here. For more information, see IRS PUB 504
Other Taxable Income
If you have taxable income we haven’t asked about, enter it as well.
O.k. so, now let’s see if the tax credits or Stimulus Payments will be considered countable income for purposes of determining eligibility for the financial help and premium assistance available through Covered California?
The answer is no! The tax credits or Stimulus Payments are not included in your income for purposes of eligibility for any financial help available through Covered California (APTC, CSR, and state subsidy).
How about the extra $600 per week Pandemic Unemployment Compensation (PUC) payments will be considered countable income for purposes of determining eligibility for financial help and premium assistance available through Covered California?
In this case, Yes, all unemployment benefits (including the extra $600 per week PUC payment) are included in your income for purposes of eligibility for financial help available through Covered California (APTC, CSR, and state subsidy). ( the example above illustrates just that!)
Very often I am asked how to calculate the income per year or per month? In other words, if you lost your job because of COVID, how would you estimate your income to find out if you qualify for Medi-Cal or financial help through Covered California? Should you report your current monthly income or your annual income?
You may choose to estimate your income on a monthly or annual basis. What is important is that you carefully and correctly include all countable income that I’ve mentioned in this video. Making errors could prevent you from receiving all the financial help you are eligible for. Or, it could cause you to receive more financial help than you are eligible for, requiring you to repay the financial help when you file your taxes.
Covered California eligibility is based on annual income, and the system will calculate an annual income if a consumer enters their income on a monthly basis.
On the other hand- MediCal eligibility is based on monthly income, and the system will calculate a monthly income;
I hope this information was helpful to you! If you have a general question, please feel free to comment below or share it! If you have an issue with your CoveredCa account or have a specific question, please feel free to reach out directly or you can delegate me as your agent and I’ll do my best and help you solve the issues.
I am a CoveredCA Certified Insurance Agent and I am familiar with most issues and have successfully helped many consumers in the past!