Metaphorically, the Obamacare page is still loading and its icon looks like it’ll be spinning for a while yet, but I’m ready to share a very preliminary evaluation at how it interacts with my low-income tax resistance method.
In summary: the news so far is good. It looks like I will be able to have a high-deductible health insurance plan that allows me to continue to contribute to a tax-advantaged Health Savings Account. My strategy of keeping my adjusted gross income (AGI) below a certain threshold in order to avoid income tax has the side-effect of qualifying me for the maximum subsidy: I will be paying next-to-nothing (a token dollar per month) for this insurance.
Here are some observations and questions I’ve come up with along the way. The law is complex and confusing and they’re still tweaking it, so don’t take any of this as gospel:
- As a self-employed person, I’ve been permitted to take the cost of my health insurance premium as an “above-the-line” deduction on my 1040 (that is, a deduction that has the effect of lowering my AGI). Because of this, although my premium is going from $2,500+ in 2013 to $12 in 2014, this won’t translate to any extra spending money for me as it wasn’t money I was spending out of my post-tax income anyway. However, I’ll need to bring in $2,500 less income next year to meet my over-all expenses. In other words, I’ll be able to maintain the same standard of living while having to work for $2,500 less income.
- The way the insurance premium subsidy works is a sort of
Goldberg machine centered on the federal income tax, and it goes a
little something like this:
- The health insurance premium subsidy is implemented as a tax credit that is based on the premium amount and on your AGI. If your AGI is low enough, some or most of your premium is paid by the government (or, if it’s even lower, you may be shuffled into Medicare).
- Instead of making you pay for your insurance throughout the year and then giving you a big credit when you file your taxes the following year, the government parcels this credit out to you indirectly — by paying it to your insurance company in lieu of that portion of your own payment.
- But you don’t know what your AGI is going to be for 2014 until you fill out your taxes in 2015, so you have to play a guessing game. When you do file and learn what your real AGI was, you also find out what your credit should have been for the year. If the government oversubsidized you, you’re supposed to pay it back; if you paid more than you had to, the government should issue you a refund.
- But there are a number of restrictions on the government’s ability to collect any overpaid subsidies: the amount that the government can demand that you return has an absolute cap on it, and the IRS is prohibited by the law from using almost all of its usual measures for recovering tax debts to go after this specific sort of delinquency. Since all the tax amounts are going to be mixed up on the 1040 and come out as one number at the end, I expect that the agency is going to have a hell of a time figuring out how to take enforcement actions against people whose tax debts are mixtures of overcredited Obamacare premiums and resisted income taxes. (Hint, hint.)
- I think I may have had this last point wrong. I have heard since that the absolute caps are only for people at low income levels: so that if you qualify for a subsidy, but the subsidy you actually received was higher than what you qualify for, you might not have to repay the complete difference between the two amounts; however, if you don’t qualify for a subsidy but you got one anyway, you can be required to pay back the full amount. Also: I think the restrictions on the IRS’s ability to use its enforcement measures against you may be restricted to its efforts to retrieve the amount of the tax penalty for not having health insurance at all, and that it may use all of its usual measures to try to recover over-paid subsidies. Again, the details of the law remain fuzzy to me, and I read a lot of contradictory things about it, so I’m piecing it together.
- So wait a minute: The government is going to keep paying to subsidize my
health insurance at the same time that they’re trying to chase me down for
(last I counted) $26,000+ I’ve refused to pay them? Seriously? Apparently
so. I have heard of no mechanism for withholding subsidies from people
with tax debts. Perhaps if I foolishly applied for the subsidies as a tax
credit on my 1040 instead of applying for the government to use the
subsidy to cover my monthly premium, the
would seize the refund and apply it to what they’re trying to extract from
me, but they don’t seem to have any interest in interrupting the payments
if I apply in the normal way.
- I anticipate at some future date, despicable leeches like myself will be subject to some sort of two-minute hate and Congress will cut us off in a flurry of righteous hearings and outraged pontifications. That might make this good news turn to bad news, as I then will be on the hook for the full premium of what I wouldn’t be surprised to find would be an inferior and more expensive product than I have now (keeping my present insurance plan was not an option as it’s being cancelled at the end of the month).
- For those of you who are signing up for health insurance in this period of flux, I recommend that you seriously consider a plan that allows you to contribute to a Health Savings Account. Such plans usually have higher deductibles, so you have to be comfortable with that, but Health Savings Accounts are a good way to shield a good hunk of your income from federal income tax.