NJ Spotlight published the following article on 5/12/2014. To read the full article, click here.

Tax Credits to Offset Cost of ACA Insurance Hinge on Income Estimates

Meir Rinde | May 12, 2014

A central feature of the Affordable Care Act is its system of advance tax credits that subsidize health insurance for middle- and lower-income Americans, in some cases bringing premiums down to as little as $20 or $30 a month.

But experts warn of potential pitfalls involving the requirement that those seeking subsidies provide an estimate of income. A miscalculation could mean higher-than-necessary monthly premiums or too-high subsidies that would have to be repaid.

The subsidies differ from other kinds of tax credits in that they benefit the recipient almost immediately, rather than at tax filing time the following year. Every month, the insurance enrollee pays a smaller premium than he would have otherwise, and the federal government pays the insurance company the difference.

The credit is also unusual in that the monthly payment is initially calculated based on the person’s income the previous year or on an estimate of future income. If the person’s income estimate is too high, their subsidy will too small and they will pay higher premiums than you could have; if their income estimate is too low, they will get a bigger subsidy but will eventually have to pay part of it back.

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