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Millions of people who take advantage of government subsidies to help buy health insurance next year could get stung by surprise tax bills if they don’t accurately project their income.

The Patient Protection and Affordable Care Act (PPACA) will offer subsidies – advanced premium tax credits (APTC) – to help people buy private health insurance on state-based exchanges, if they don’t already get coverage through their employers.

The subsidies are based on income. The lower your income, the bigger the subsidy.

But the government doesn’t know how much money a person is going to make next year (2014). And when applying for the APTC subsidy, this fall (2013), the IRS won’t even know how much a person is earning this year. So, unless a person tells the government otherwise, it will rely on the best information it has: their 2012 tax return, filed April, 2013.

What happens if a person or their spouse gets a raise and the family income increases in 2014?

A person could end up with a bigger subsidy than they are entitled. If that happens, the law says the person would have to pay back at least part of the money when filing the 2014 tax return in the spring of 2015.

This action could result in smaller tax refunds or surprise tax bills for millions of middle-income families.

“That’s scary,” says Joan Baird of Springfield, VA. ” I had no idea, and I work in healthcare.”

Baird, a health care information management worker, is far from alone. Health care providers, advocates and tax experts say the vast majority of Americans know very little about the new health care law, let alone the kind of detailed information many will need to navigate its system of subsidies and penalties.

“They know it’s out there,” said Mark Cummings, who manages the H&R Block office where Baird was getting her taxes prepared.

“But in general, a person does not know anything about the law.”

A draft of the application for insurance asks people to project their 2014 income if their current income is not steady or if they expect it to change. The application runs 15 pages for a three-person family, but nowhere does it warn people that they may have to repay part of the subsidy if their income increases.

“I think this will be the hardest thing for members of the public to understand because it is a novel aspect of this tax credit,” said Catherine Livingston, who recently served as a health care counsel for the Internal Revenue Service. “I can’t think of what else they do in the tax system currently that works that way.” Livingston is now a partner in the Washington office of the law firm Jones Day.

There’s another wrinkle:

The vast majority of taxpayers won’t actually receive the subsidies. Instead, the money will be paid directly to insurance companies and consumers will get the benefit in reduced premiums.

Health care providers and advocates for people who don’t have insurance are planning public awareness campaigns to teach people about the health care law and its benefits.

Enroll America, a coalition of health care providers and advocates is planning a multimillion-dollar campaign using social media, paid advertising and grass-roots organizing to encourage people who don’t have insurance to sign up for it, said Anne Filipic, a former Obama White House official who is now president of the organization.

The Obama administration says it, too, is working to educate consumers.

“On October 1, 2013 each state will have a marketplace up and running where consumers can choose a private health insurance plan that fits their health needs and budget,” says Treasury spokswoman Sabrina Siddiqui. “The premium tax credits will give middle-class Americans unprecedented tax benefits to make the purchase of health insurance affordable for everyone, and we will continue to work with consumers, community health organizations and other stakeholders to raise awareness and understanding of these tax benefits.”

The subsidies, which are technically tax credits because they are administered through the tax code, will help low-and middle-income families buy health insurance through the state-based exchanges.

Under the new law, nearly every American will be required to have health insurance starting in 2014, or face penalties.

The enrollment season starts October 1, 2013.

The subsidies are available to families with incomes up to 400 percent of the poverty level.

This year, four times the poverty level is about $62,000 for a two-person family and for a family of four, it’s $92,000.

About 18 million people will be eligible for subsidies, according to the Congressional Budget Office (CBO).

If families get bigger subsidies than they are entitled to under the law, the amount they have to repay is capped, based on income and family size. If they get less than they qualify for under the law, the government will pay them the difference in the form of a tax refund.

There are also special rules that protect people who marry or divorce from being required to pay back subsidies just because their marital status changes.

At this point in time, there are four thresholds for repaying the subsidies:

– a family of four making less than $47,000 would have to repay a maximum of $600.

– if the same family makes between $47,000 and $70,000, the amount they have to repay is capped at $1,500.

– if the same family makes between $70,000 and $94,200, the amount is capped at $2,500.

– families making more than four times the poverty level have to repay the entire subsidy.

“It’s potentially going to come as a shock to individuals who meet that criteria where their income hits a point and they owe money back,” said chairman of the House Ways and Means oversight subcommittee. “The fact is, with variations in income, people could end up owing money back and that will create consternation and problems for them.”

The total amount of money that taxpayers will have to repay is unclear, but congressional estimates offer some clues.

Twice since PPACA was passed, Congress has increased the caps for how much people will have to repay. Combined, the two measures are expected to raise more than $40 billion over the next decade, according to Congress’ Joint Committee on Taxation.

“I think people will get there,” said Livingston, the former IRS official. “They will develop instincts about it the way we all do about any process we go through multiple times. But when it’s new, in the early years, this will be a real learning curve.”

What do YOU think?


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Lots of scams come by phone or by mail, but when the scam artist is right in front of you, researchers say the clues are in the face.

“A smile that is in the mouth but doesn’t go up to the eyes, an averted gaze, a backward lean” are some of the ways deception may present itself, says Shelley Taylor, a psychologist at UCLA.

Taylor wanted to know if older people recognized these visual cues as readily as younger people. She brought 119 adults older than 55 into the research lab along with 24 younger adults in their 20s. Both groups were shown 30 photographs, each depicting either a trustworthy, a neutral or an untrustworthy face.

“The older adults rated the trustworthy faces and the neutral faces exactly the same as the younger adults did, but when it got to the cues of untrustworthiness, they didn’t process those cues as well,” she says.

“They rated those people as much more trustworthy than the younger adults did.”

In a small follow-up study using brain imaging, Taylor’s findings suggest older adults may have less activity in the very area of the brain that processes risk and subtle danger. Another possible reason older adults don’t pick up on warning signs, she says, is an increasing bias against negativity.

Junk Mail and Other Scams

A survey last year from the AARP analyzed the behavior of 723 victims of fraud and compared them to the general public. The survey found the average age of fraud victims was 69.

“Fraud victims tend to be much more likely to do things like open junk mail, listen to unknown callers on the phone who are telemarketing,” says Doug Shadel, who’s with AARP in Washington state and who headed the survey.

“They’re more open to putting themselves in sales situations, and this explains in part why they may be defrauded.”

They are also inclined to believe those too-good-to-be true promises, like a guaranteed 50 percent return on investment with no risk. Ironically, it was older men with experience in investing who lost the most. Women were more vulnerable to petty fraud – things like sending in $50 to collect on that $50,000 sweepstakes they just won.

The current biggest scam, says Shadel, a former fraud investigator who wrote a book titled Outsmarting the Scam Artists: How to Protect Yourself from the Most Clever Cons, are gold coins often advertised in print and broadcast.

“The con artists will say, ‘during periods of economic instability, you can’t trust the stock market, can’t trust the bond market – the thing you can trust is precious metals,’ ” Shadel says.

The genius of the scam is that you actually receive the coins. It’s just that you’ve paid up to five times their market value. Scam artists today, says Shadel, are aided enormously by technology that enables them to simply press a button and send hundreds of thousands of emails.

The best defense, Shadel says, is don’t go for any of it. Throw out the junk mail. Don’t answer unknown callers. And forget about those free lunches and dinners that promise great options for investment.





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Retirement ads are everywhere these days. The “Villages” lures retirees to come live, love, and golf in Florida. USAA offers financial counsel to retiring military personnel. Hollywood stars such as Pat Boone and Tommy Lee Jones dole out all kinds of retirement advice in 30-second sermonettes on television and the internet. 

“Thousands of seniors have turned to “One Reverse Mortgage” to take control of their retirement,” intones Henry “The Fonz” Winkler in one earnest spot.

Old actors don’t retire; they just make retirement ads.

But the more talk there is of retirement – on TV, in pop-up ads, in news stories – the more you begin to wonder:

What is retirement anymore anyway?

Backyard Hammocks

In times past, the official portrait of a retired American included a steady, dependable pension; leisurely mornings puttering about the house in soft slippers – maybe replacing the chain on the toilet tank ball or knitting a doorknob cozy; slow-driving from drug store to grocery to TV repair shop (back when TVs could be repaired).

Afternoons were for penning letters to faraway friends and checking on the backyard hammock hooks.

Oh sure, there was plenty to do – foursomes of bridge and long weekend fishing trips. Perhaps for the more privileged – a beach house, a houseboat, that long-delayed trip to Mexico City.

No mas.

“I think the word ‘retired’ needs to be retired,” says financial writer Kerry Hannon in her 2012 book, “Great Jobs for Everyone 50+”.

“Baby boomers are either continuing to work much longer or approaching work not as an afterthought, but as a pillar of their retirement plans,” Hannon says, “as oxymoronic as that sounds.”

Many older people are continuing to work – some out of choice, some out of necessity. “Unlike many of our parents,” says Hannon, “most of us don’t have pensions to fall back on to fund not working for a decade or more.”

Hannon notes a few statistics:

Between 2010 and 2020, people age 55 and older are projected to be the fastest-growing segment of the U.S. labor force, according to the 2012-2013 Occupational Outlook Handbook, a jobs forecast by the U.S. Bureau of Labor Statistics. And, according to recent findings by the Employee Benefit Research Institute, more and more workers say they are planning to delay retirement.

“Today’s 60-year-old might reasonably plan to work at least part-time for another 15 years,” Hannon says. “That changes the entire definition of retirement today and what it really means.

For many retirees, working in retirement is quickly becoming a new stage in career progression.”

Persistence Living

As a word, retirement “has already undergone substantial change in its lifetime,” says Katherine Martin, head of U.S. dictionaries at Oxford University Press. “Its earliest known use in English – 1536 – referred to withdrawal or retreat in a military context.

By the early 17th century, it had taken on a new meaning, referring to the state of living apart from society in seclusion.

Then, by the middle of the 18th century, the use that is now most familiar had become common, referring to the action of leaving office, employment or service permanently, now especially due to age.”

As many Americans are discovering, however: Nothing is permanent. “The entire concept of you-work-and-then-retire is over for most people,” says Hannon.

“Retirement is a process. People gradually fade out of the workforce. About 60 percent of the career workers take on a job after exiting their main career. They ease their way into what we used to consider retirement.

As older people stay in and return to the workforce, we are seeing social dominoes fall.

Employers are having to make new decisions – should they hire younger or older folks? Families are seeing the ripple effects as job-seeking young people move in with job-keeping parents. And many older people, Hannon says, really do want to keep working for reasons of mental engagement and social interaction.

“The money makes it even better,” she says, “even if it’s not a lot.”

So if we retire the words “retire” and “retirement” what should we call that phase of life when people leave office, employment or service permanently – especially due to age?

Should we have “longevity funds” instead of “retirement funds”?

Should we say she’s “re-engaging” instead of “retiring”?

And what will we call those living areas that are so popular for American seniors – “endurance communities” perhaps?