Meet my family.
My wife and I have three college-age children. Each of the kids made some money and filed their own tax returns, as required. My wife and I made $68,000 combined last year. We filed on time. So did our kids. We were taxed at our rate, they were taxed at their lower rate. Because our income was modest, we were eligible for a premium tax credit on the health insurance plan we bought from HeatlhCare.gov. Or so we thought.
But under the Affordable Care Act, I have two aviator families. Eligibility for premium tax credits are based on a calculation of “tax family” and “coverage family.”
First, meet my “tax family.” My tax family includes my spouse and each child or adult claimed as a dependent on our tax return, if they were required to file a tax return — which is about $6,300. So of our three kids that we claim as a dependent, we count our son, Adam, 22, who made $7,000. He is a part-time graduate student. But we do not count our daughter, Ashley, 19, who made $6,000. We do count their oldest brother, Andrew, who in months after graduating from college, got a job and made $12,000.
In my family, we have a Blue Cross Blue Shield plan that covers all five of us. The premium is $1,088 a month with a financial subsidy. We have a $6,000 family deductible. It is the second lowest cost silver plan.
Even after our oldest son started a job he opted to stay on our plan, which made the most sense for his situation. The family deductible had already been met for the year, and he would have needed to meet another drug deductible for his ongoing medications.
Now meet my second avatar — my “coverage family” My coverage family includes only the people covered by our family’s health plan who do not have access to alternative minimum essential health coverage (coverage through an employer or government entity). My son Adam is technically eligible for Medicaid, so his portion of the premium cannot be counted towards a subsidy. And Andrew was offered insurance from his new employer for the second half of the year. Thus, my “coverage family” includes my portion of the premium, and my wife’s, plus all of my daughter’s, none of our youngest son, and one-half of my oldest son. Of the $1,088 monthly premium it turns out only $816 is eligible for the subsidy.
When I bought my plan I used the subsidy calculator that suggested I was eligible for $669 a month in subsidy based on household income for me, my wife, and three dependents. But now that I know for purposes of the premium tax credit, I must also calculate income from two of my children, reducing our financial subsidy to $424 a month because our income is not $68,000 but $87,000.
The $424 was based on an expectation that five people would be eligible for the premium tax subsidy. However, only three qualify for the full year, and one qualifies for half of the year. For tax filing purposes to determine income for my wife and I, we counted just the two of us. My tax family includes four people, and my coverage family includes 3.5 people. So only 75% of the premium is eligible for the subsidy.
Instead of a $669 monthly subsidy on the $1,088 we pay each month, my actual subsidy is lower because my ”tax family” income is higher than I estimated. And it can only be applied toward the 75% of the premium that is applicable because my coverage family is smaller than my tax family. This reduces my actually premium tax credit even more, to $318 a month, not $669/month.
I now owe Uncle Sam just over $4,000 for miscalculating my health insurance premium subsidy last year.
The names used and tax filing information listed in this article are fictitious, and strictly serve as illustration for the story.