Don't Mess With Taxes

Some suddenly out-of-work people are taking a double hit. Not only must they deal with the loss of income, but also the loss of their workplace-provided medical coverage.

This week's relatively good COVID-19 pandemic economic news is that the latest count of folks who filed for unemployment benefits was down.

The bad news? The U.S. Department of Labor reported today that another 3.8 million people filed claims for jobless benefits last week.

While that's a drop from the previous week's 4.4 million unemployment claims, overall more than 30.3 million have applied for state help to make ends meet now that they no longer have their regular paychecks. That's roughly the population of Texas. 

Worse, some folks are taking a double hit. In addition to losing their income, they've lost their workplace provided healthcare coverage. The Economic Policy Institute estimates that nearly 13 million workers have likely lost employer-provided health insurance since the coronavirus shock began.

Deciding whether to try to replace the medical coverage is an individual decision. It's also one in which taxes play a role and, in some cases, could help folks who opt for a replacement policy.

Costly continued coverage: Millions of Americans get their medical insurance through their work. If you're married and your husband or wife gets medical insurance through his or her job, the easiest move for a suddenly uninsured individual is to be added to your spouse's employer-sponsored plan.

If that's not possible, there's COBRA. This federal law, known by its acronym for the Consolidated Omnibus Budget Reconciliation Act, provides a path for continued coverage under your workplace plan when you leave a job.

COBRA says you can continue, generally for up to 18 months, the same coverage you had while employed, regardless of whether you left voluntarily or were laid off. But there's a costly catch.

To keep you prior job-provided coverage, you must pay the full amount of the premiums. That includes the portion you paid as an employee, as well as the portion paid by your former employer.

That's why COBRA coverage costs tend to be double or more the amounts for medical insurance that came out of your now discontinued paycheck.

And that's why many folks don't go the COBRA route even if they really, really like their healthcare coverage.

No more tax penalty: For some, though, COBRA isn't feasible. For others, the added premiums of being added to a spouse's workplace plan also are just too much in their new and more-strapped financial conditions.

Many of these folks, suddenly out of work and with little savings, might opt to take their coverage chances and go without.

That's more likely since lawmakers effectively eliminated the Affordable Care Act (ACA) requirement that everyone must have minimal acceptable coverage.

When the ACA, or Obamacare as it's still popularly called, took effect, you had to have a decent medical policy or pay a tax penalty. The Tax Cuts and Jobs Act (TCJA) repealed the penalty effective with the 2019 tax year.

Since they now don't have to pay the ACA penalty, some folks have opted, even while working, to go without coverage. The growing unemployment numbers mean more are likely to join the uninsured ranks.

Tax help buying coverage: Some people, however, aren't comfortable going it alone medically. It that's you, the tax code might be able to help.

You can shop for an acceptable and more affordable medical policy at the federal marketplace, HealthCare.gov. Depending on where you live, you also might be able to search for insurance at your state's marketplace.

And to help pay for this coverage, check out the premium tax credit (PTC).

The PTC can help offset the cost of the monthly premiums for the policy you get through the marketplace. The amount of the credit varies, based on your household income and family size.

Advance, at filing and reconciling: If you qualify, the credit is available two ways, as an advance credit up front that pays for a portion of your policy as the premiums come due or as a credit you claim when you file your tax return the next year.

Most who get the PTC do so as an advance to help with their cash flow.

In these cases, you still have to do some calculating when you file your taxes, to reconcile the amount you got. If the advance PTC amount you got turns out to be too large, you have to pay back the excess when you file. If you didn't get all for which you were eligible or didn't get the PTC in advance, you'll claim it when you file.

Regardless of whether you got the PTC in advance or claim it at filing, your medical coverage tax math is completed by using Form 8962, Premium Tax Credit, which is filed with your annual tax return. Also be on the lookout for Form 1095-A, Health Insurance Marketplace Statement, which will have information you need to complete Form 8962.

You can find more on these and other ACA forms in my earlier Tax Form Tuesday post on Obamacare tax forms in the time of coronavirus.

Yes, messing with extra tax tasks is a hassle even when it helps your bottom line. But in these tough and trying financial times, it's worth the trouble for many who want or need to continue medical insurance after a job loss.

You also might find these items of interest:

• When health insurance premiums are tax deductible
• COVID-19 law expands FSA OTC options and ends Rx rule
• Unemployment benefits help after a job loss, but it's taxable income

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