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Obamacare Subsidies: How an Extra $1 in Income Can Cost You Thousands

The Patient Protection and Affordable Care Act, better known as Obamacare, has a number of complex provisions. But many people see one particular quirk as a complete mistake, and it's one that can cost you thousands in subsidies if you're not careful.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the so-called Obamacare subsidy cliff and how it can be a huge drain on your finances. Dan explains that Obamacare subsidies focus on a number equal to 400% of the federal poverty limit, an amount equal to $44,680 for a single person and which adds another $15,840 for every additional family member. As Dan notes, if you earn less than that amount, you're eligible for whatever subsidy is necessary to bring your health-care costs down to 9.5% of your income. Earn more than that amount, though, and you lose all your subsidies. For those near that income line, a little extra income can cost singles around $2,600 according to Congressional Budget Office estimates, and larger families can lose $10,000 or more in subsidies. Dan concludes by noting the problems not just for participants but for WellPoint (NYSE: WLP  ) and other insurance companies, since they'll be the ones to deal with inevitable complaints among customers and a lack of clarity about how subsidies work.

Get the Obamacare subsidies you deserve
In order to get smarter about the Obamacare subsidies you're entitled to, make sure you have all the facts. Fortunately, you can learn the critical concepts you need to know in a special free report called "Everything You Need to Know About Obamacare." But don't hesitate, because it's not often that we release a free guide containing this much information and money-making advice. Please click here to access your free copy.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 07, 2013, at 5:44 PM, thumber wrote:

    Can you picture going in to your boss and saying "please don't give me a raise because if you do I won't be able to afford my healthcare".

  • Report this Comment On December 07, 2013, at 11:53 PM, s4f56g wrote:

    The thing about how earning one extra dollar can cost you thousands of dollars is #290 on this list:

    http://danfromsquirrelhill.wordpress.com/2013/08/15/obama-25...

    Obama supporters will go hysterical over this well sourced list of 462 examples of his lying, lawbreaking, corruption, cronyism, etc.

    290) Gave people an annual tax increase of up to $12,214 for earning one more dollar of income

    In front of the U.S. Supreme Court, the Obama administration argued that Obamacare is a tax.

    Obamacare gives some people a tax increase if they increase their income by one dollar. The amount of this tax increase depends upon the person’s age, income, and marital status.

    According to the Obamacare calculator, the extreme case of this occurs with a 64-year-old married couple with a combined income of $62,041. Under this scenario, according to the Obamacare calulator, Obamacare gives them an annual tax increase of $12,214 when their income increases by one dollar, in the case of their income going from $62,040 to $62,041.

    This amounts to a marginal tax rate of 1,221,400%. That’s not a typo – the marginal tax rate on that one dollar of additional income is more than one million per cent.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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