If you are divorced (or getting divorced), have children, and have your healthcare coverage through the exchange you need to read this BEFORE you file!
By: Hirsch Serman, MBA, CPA
Yes, that is quite specific, however, you will be happy you read this PSA. Many people finalized their divorce prior to the existence of The Exchange and so many of the complications of divorce and utilizing The Exchange could not have been anticipated (and many getting divorced are still running into these costly complications).
One of the compelling reasons to be on The Exchange is because the government may be subsidizing your premiums (i.e. paying a portion of your premiums). The subsidies can be quite tricky and there are several significant considerations that need to be taken into account when filing your tax returns. Here are a couple for you to pay attention to:
- Do you alternate years in which they will claim the children as dependents on your tax return?
- Do you split the children for filing purposes (e.g. there are two children and each spouse gets to claim one of the children on his/her tax return)?
- Do you have the children on your health care plan through The Exchange but your ex-spouse gets to claim the children on his/her tax return?
- Do you have a child on your healthcare plan who claims himself/herself when filing?
- Is your income earned for the year more than what you estimated it would be when you signed up for health care?
The above scenarios are quite common practices for those impacted by divorce and may have significant financial impact on those filing. I was recently dealing with a client who lost all of the subsidies (over $6,800 had to be returned to the government). This is because the children were on his health care plan, however, it was the ex-spouses turn to claim the kids on the tax return. Due to the children being on one parent's plan and another parents tax return, all the subsidies received for the child had to be paid back to the government. Don’t worry, I advised my client on ways to considerably reduce that amount owed.
You may also be required to pay back the government if you underestimate your income or if your child files his/her own taxes while on your plan.
The “double whammy” is that health care costs play into most child support payments as well.
The bottom line is that in order to get to keep the subsidies your earned income needs to basically match the income you estimated up front and you will need to have everyone on your healthcare through The Exchange plan be claimed on your tax return. Should you find that you may be facing one of these situation, please reach out to me and we can talk through how to mitigate the cost you are potentially going to incur.
Hirsch Serman, MBA, CPA is the founder of Lifecycle Financial LLC, a company that helps those going through Divorce and other life cycle changes to navigate the financial pitfalls of a new life dynamic. He has worked in finance for over 20 years (including financial planning and tax) and has taught on the university level as well as conducted seminars for high school youth on personal finances. Hirsch is a member of the National Association of Divorce Professionals, AICPA, IL-COC, and American Association of Daily Money Managers (AADMM).
Listen to Hirsch’s radio show The Financial Wellness Hour on www.facebook.com/SinglesTalkRadio
INC., DivorcedMoms.com, DivorceMag.com, Better, The Financially Independent Millenial, The Memphis Business Journal, The New Southern, and Funding Sage and other media outlets have all covered his work in Divorce and Hirsch was selected to be a New Orleans Entrepreneur Week Fellow. Hirsch has a passion to serve others and has worked with numerous non-profit boards including the United Way and is a Trustee on the Board of Texas College. Please reach out with any comments to firstname.lastname@example.org.