IRS will retroactively bill you for your Obamacare subsidies if your income rises

Get this.

Say you reported to the Obamacare exchange last month that your recent income is at a rate of about $50,000 per year. For a family of four that signs up just the two adults, Obamacare subsidies would be about $500 a month or $6K for the year.

What happens if your income rises for some reason and you close the year with $80,000 in income? Well, then the IRS on your 2014 tax return will hit you with – what some call – an Obamacare Subsidy Chargeback to collect most of the subsidy that they paid on your behalf. At $80K your subsidy is substantially less than had you actually closed the year at $50K in total income.

So not only do you pay more income tax at your elevated level of income, you will also get hit with an Obamacare Subsidy Chargeback on your tax bill which will amount to thousands of dollars.

This regulation essentially means that people may choose not to earn more income or may cancel their plans mid-year once they learn about it.

A friend of mine out of New York and his wife signed up last week for a Bronze Plan with premiums of almost $8,000 per year (a terrible plan that leaves them with $12,700 in annual deductibles and copays), but due to the subsidy, their premiums are costing them only 1/4 of the stated amount; until of course their income starts to rise.

During signup, my friend was informed about this Obamacare Subsidy Chargeback and was asked to acknowledge this on the record in order to move forward with the application. Today I read exactly the same thing at BusinessWeek but with an added point:

if your income changes substantially during the year—either up or down—you should notify the exchange you’re participating in and ask for an adjustment of your subsidy. That way you’ll avoid a nasty surprise come tax time.

So folks this mess is real!

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