When it comes to the Affordable Care Act (ACA), those who are considered lower and middle class definitely benefit the most from the new subsidization that comes along with the ACA. If you are a W-2 employee or have a fixed income, the amount of subsidy assistance you receive is probably not going to change, but for those who are fully self-employed or have a side business with a variation in income received from year to year, you might be in for a big shock when you file your 2014 tax returns. Anyone’s adjusted gross income that ends up being much higher than expected resulting in a loss of their heath insurance coverage partial or full subsidization will have to pay that amount back, basically, as an additional tax owed. As follows are the subsidy phaseout limits for different family sizes where any subsidy stops:
1. Single individual – $45,960
2. Married couple with no children – $62,000
3. Family of three – $78,000
4. Family of four – $94,200
When you no longer receive a subsidy you have to pay 9.5% of your AGI for health insurance premiums on any of the public exchanges. As an example of where this could be a problem is a single individual projects their AGI to only be $25,000 for 2014. Therefore, under a silver plan, their annual premium is $2,535, but $806 is subsidized. Come year-end, their projection is incorrect, and they made $46,000 resulting in an additional $806 due on their 2014 federal tax return. For those who aren’t prepared to owe significant additional taxes when the time comes, paying the full amount may be a struggle. Here are some tips and advice for offsetting that possible increased tax burden:
1. Contribute to a traditional IRA. Since this is what is known as an “above the line” item it lowers your total income to reach your AGI. For 2014, the limit is $5,500 or $6,500 for those 50 or older.
2. If you own a business, make sure you are getting all the tax deductions you deserve. If you are looking for additional business deductions or unsure about deducting certain items, consulting a tax professional would be in your best interest.
3. If you have the funds, purchase a rental property. Most rental properties result in a net loss due to all the expenses involved, especially, depreciation and mortgage interest. As a result, this would lower your total income.
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