Sharing Health Insurance Premiums and Avoiding Costly Consequences

This blog is inspired by a recent discussion on regarding health insurance and tax issues under the Affordable Care Act (ACA). In this post, we will delve into the specific topic of allocating premiums and subsidies between multiple households on a single health insurance plan.

Understanding the ACA Premium and Subsidy Allocations

When multiple individuals from different households are included on the same health insurance plan, the premiums and subsidies may need to be allocated among them. This process is particularly important when there is a change in family circumstances, such as marriage or divorce.

Who is Responsible for Removing a Dependent from an Insurance Plan?

It is generally the responsibility of the policyholder, typically the primary plan member, to notify the insurance provider of any changes in dependents. This includes removing individuals who are no longer eligible for coverage, such as a child who has aged off the plan or a spouse who has gained coverage through their own employer.

Consequences of Not Removing a Dependent from an Insurance Plan

Failure to remove ineligible dependents from a health insurance plan can have significant consequences. The IRS may send a tax bill to the policyholder for the premiums and subsidies that were allocated to the ineligible individual. This can lead to substantial financial penalties.

How to Allocate Premiums and Subsidies Between Households

To avoid potential tax issues, it is crucial to allocate premiums and subsidies correctly between multiple households on the same health insurance plan. This can be done using Form 8962, Premium Tax Credit (PTC) and Advance Payment of the Premium Tax Credit (APTC).

Part IV of Form 8962 allows individuals to allocate premiums and subsidies between multiple households. By completing this section, the policyholder can specify the percentage of premiums and subsidies that apply to each individual on the plan.

Example:

In the post, the policyholder’s sister was married and therefore no longer eligible to remain on her father’s health insurance plan. However, she did not notify the insurance provider and continued to receive coverage through her father’s plan. This resulted in her receiving an IRS bill for the premiums and subsidies that were allocated to her.

To resolve this issue, the policyholder and his sister can use Form 8962 to allocate 100% of the premiums and subsidies to the father and 0% to the sister. This will ensure that the father is responsible for all tax implications related to the plan.

Conclusion

Allocating premiums and subsidies correctly between multiple households on a health insurance plan is essential for avoiding costly tax consequences. It is important to promptly notify the insurance provider of any changes in family circumstances and to use Form 8962 to allocate premiums and subsidies appropriately.

If you have any questions or need assistance with allocating premiums or subsidies, it is recommended to consult with a licensed insurance agent or tax professional.