Obamacare: when your only income is Social Security

My wife has no income but I collect Social Security and that is all the household income.  I am 66 and she is 64.  We do not have to file a tax return.  For her health insurance subsidy, will we need to file a 2012 tax return because the IRS will use this year income to reconcile in 2014?

Ron in Texas

 Dear Ron in Texas, 

I’m going to give you two answers:

Answer #1: Assuming your household income is below tax-filing threshold or below 133% of Federal Poverty  

If your household income is below the tax-filing threshold ($21,200 for a household of two with one person under age 65 and the other over age 65) or below 133% of Federal Poverty ($20,628 for a household of two people) – then your wife will not qualify for subsidies to buy health insurance.  Texas is one of the states that did not “expand” Medicaid, so this leaves people in an odd situation – not poor enough to qualify for Medicaid, and too poor to get subsidies to buy private health insurance.

You would not have to pay the tax penalty for having no insurance.  I realize this is not helpful, if your goal is to have health insurance that you can afford.

Answer #2: Assuming your household income is at least 133% of Federal Poverty

If your household income is at least $20,628, then your wife could get subsidies to purchase health insurance.  You would not need to file a 2012 tax return, but you would need to file a return for 2014.  The IRS will use your 2014 income to “true up” with you in 2015 – pay you a “refund” if you should have received more in subsidies, or charge you back for subsidies you received that you should not have.   When you apply for your health insurance and the subsidy, you will be asked to estimate your 2014 income.

Here is where it gets tricky.  If you later find that your earnings are less than 133% of Federal Poverty, then the IRS would have the right to have you pay back all the subsidies you had received.  You would have received a government benefit that you did not qualify for.  There are some experts who believe that the IRS will not collect overpaid subsidies from people whose earnings are less than the 133% of Federal Poverty.  It’s a steep gamble and I do not know of any advisors telling their clients to go ahead and hope this is true.

In your case, your earnings are very predictable so you will easily be able to estimate your income.

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Linda Riddell

About Linda Riddell

A published author and health policy analyst with 25 years’ experience, Linda Riddell's goal is to alleviate the widespread ailment of not knowing what your health plan can do for you.