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Year-end Tax Matters and Health Insurance

Here's how your year-end taxes affect your health insurance.

At the end of the year, you’ve probably been thinking a little bit about your taxes, but have you thought about how your taxes affect your health insurance? If not, you need to.

Both the Affordable Care Act (ACA) and Medicare have different premiums based on a person’s taxable income for the year. A taxable event shouldn’t be glossed over when it comes to thinking about health insurance.

“The advanced premium tax credit is very much tied into your taxable income, which does affect your health insurance premium that you owe even this year in 2021,” said Jae Oh, author of Maximize Your Medicare.

In Medicare, there is the income related monthly adjustment amount or IRMAA tax which can affect both your premium and your Part D premium. It’s important that these things become covered before it is too late.

In terms of advanced planning, it is a good idea, according to Oh, to keep track of what dividends had been paid throughout the year because that can affect your tax bracket. These dividends could also affect your investment strategy, which makes it more important for you to keep track. If possible, the returns that create these events should be non-taxable, although not everyone has that amount of flexibility.

Either way, this could drastically affect the difference in the premiums on your health insurance.