Affordable Care Act and Minnesota Family Law: Tax Credits & Claw-Back Provision

In my prior blog post, I pointed out that the premium tax credits are offered to offset the expense of the health insurance that individuals are mandated to carry. These tax credits are based on each tax filer’s projected income and thus there is a risk of bad consequences to understated income.

The amount of the credit received will depend on how far under the eligible income threshold the filer is; the maximum eligible income is 400% of the 2013 federal poverty guidelines ($62,040 for a single parent of one child). Thus a single parent estimates their income to be $60,000 will receive a smaller credit than the a single parent who projects to make $30,000 in that tax year. 

During the application process, people are asked to project their income for the year. At tax time next year, the Internal Revenue Service will reconcile an individual or family's actual income against the amount that was projected. People who received too much in tax credits may have to repay some or all of it.

This is the claw-back provision, under Internal Revenue Code 1.36(b)(a). If the filer is still under the threshold but is found to have substantially more income, the claw-back repayment of the credit is a $250 for individual filers and $400 for family filers. However if the actual income is outside the 400% threshold, there is no cap on the amount of the credit that needs repayment.

These consequences are important for family law attorneys and parties to know when taking the credits into account when assigning health insurance coverage responsibilities between parents. The parties need to understand the risk involved in estimating their incomes to be eligible for these premium tax credits.

For more information the Affordable Care Act and Minnesota Divorce and Family Law, please be sure to read my other blog posts.