Some Minnesotans who received a subsidy last year to help cover the cost of their health insurance may be in for a surprise when they file their tax return for 2014. At least one constituent reported to me that they must pay several hundred dollars of additional tax to cover the subsidy they received from the federal government to defray the cost of insurance. To be fair, this is not a problem brought on by the troubled MnSure exchange in Minnesota. It has to do with incomes that turned out to be under-estimated, which resulted in subsidies received that were too large.
Back when folks signed up for health coverage and the associated subsidies for last year, 2013 incomes were used to determine the level of subsidy. However, if the actual income for 2014 increased by a certain level, it changed or eliminated the subsidy amount people were entitled to receive. That’s the reason why some will have to pay income tax on that subsidy, although they had no idea this might happen. And even if they knew, it would have been very difficult, if not impossible, to get back into the MnSure system to make a change in income, which would have also resulted in a lower subsidy and higher health insurance premiums.