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Health care law brings tax bite

Income subsidy easy to misjudge

– Millions of people who take advantage of government subsidies to help buy health insurance next year could get stung by surprise tax bills if they don’t accurately project their income.

The health care law will offer subsidies to help people buy private health insurance on state-based exchanges, if they don’t already get coverage through their employers. The subsidies are based on income. The lower your income, the bigger the subsidy.

But the government doesn’t know how much money you’re going to make next year. And when you apply for the subsidy, this fall, it won’t even know how much you’re making this year. So, unless you tell the government otherwise, it will rely on the best information it has: your 2012 tax return, filed this spring.

What happens if you or your spouse gets a raise and your family income goes up in 2014? You could end up with a bigger subsidy than you are entitled to. If that happens, the law says you have to pay back at least part of the money when you file your taxes in spring 2015.

That could result in smaller tax refunds or surprise tax bills for millions of middle-income families.

A draft of the application for insurance asks people to project their 2014 income if their current income is not steady or if they expect it to change. Nowhere does it warn people that they may have to repay part of the subsidy if their income increases.

About 18 million people will be eligible for subsidies, according to the Congressional Budget Office.

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