Janice Riddle got a nasty surprise when she filled out her tax return this year.
The Los Angeles resident had applied for Obamacare in late 2013, when she was unemployed. She qualified for a hefty subsidy of $470 a month, leaving her with a monthly premium of $1 for the cheapest plan available.
Riddle landed a job in early 2014 at a life insurance agency, but since her new employer didn’t offer health benefits, she kept her Obamacare plan. However, she didn’t update her income with the California exchange, which she acknowledges was her mistake.
Now, she has to pay back the entire subsidy, which is forcing her to dip into her savings.
“I was blindsided that the subsidy has to be paid back,” said Riddle, adding she didn’t even use the coverage, which she had until she qualified for Medicare in October. “I’m in shock…but I have no choice. Do I want to argue with the IRS or the Obama administration?”
Riddle is one of millions of Americans who find themselves in a similar situation. Between 4.5 million and 7.5 million taxpayers received subsidies for insurance premiums when they signed up for coverage on Obamacare exchanges, federal officials said. These folks had to forecast their 2014 income when they applied. Those who underestimated their earnings either will receive smaller tax refunds or will owe the IRS money.
Some enrollees, however, had a change in circumstances — such as a raise, new job, marriage or baby — during the year that could affect their subsidy level. Obamacare enrollees were supposed to contact their exchange so it could revise their premium. Some people, however, did not know they had to notify the exchange or simply didn’t bother.
Also, just because someone qualified for a certain subsidy at the beginning of the year doesn’t mean they are ultimately entitled to it. It’s the total annual income that matters, so if an enrollee got a big raise mid-year, his entire subsidy may have to be repaid.
Early data is in from some tax preparers. Some 53% of Jackson Hewitt clients who received subsidies have to repay part or all of it, with the largest being $12,000, said Mark Steber, chief tax officer. The rest overestimated their income so they are getting even larger refunds. One taxpayer is collecting an additional $7,500.
Some Obamacare enrollees who have to pay back their subsidies are now thinking twice about enrolling for 2015.
Erica Cherington, 32, was “very happy” to enroll in Obamacare last year so she could address some health issues. She only had to pay $89 a month for a Horizon Blue Cross Blue Shield plan, thanks to a $284 monthly subsidy. She let herself be automatically re-enrolled for 2015.
During 2014, however, the Newark, N.J., resident landed a new job with a higher salary. Now, she has to pay back $600 of her subsidy.
To avoid this happening again, Cherington called the federal exchange to update her income, which she hadn’t done when she changed jobs. Her revised monthly premium: $156 a month.
A case manager who handles disability payments, Cherington is now considering dropping her coverage and paying the penalty instead.
“It’s not really affordable,” she said of her new premium. “I don’t know if I’ll be able to keep it.”