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Unemployed workers are hit with another shock: Many owe the government money for health insurance

InternationalMar 06. 2021

By Heather Long
The Washington Post

Preschool teacher Michele Ryan was nearly in tears when she filled out her 2020 taxes and learned that she owes the government more than $3,100 despite being unemployed for a significant portion of last year. She owes about $1,000 in taxes on unemployment income, but the bulk of her bill – $2,100 – is to repay some of the subsidy she received to buy health insurance last year.

According to the federal government, Ryan earned too much money on unemployment. It was more money than she would have made working as a preschool teacher, and it bumped her into a different income bracket that reduced her Affordable Care Act insurance subsidy. She’s desperate to keep health insurance in the middle of the pandemic and is trying to figure out how to pay the hefty bill.

“Where do I come up with all of this money to pay them back during the pandemic?” said Ryan, 50, who lives in Bergen County, N.J. “What did they expect us to do? Drop Obamacare during the pandemic?”

Ryan is among the millions of Americans encountering surprisingly large tax bills in the midst of a global health crisis. She was finally able to go back to work at a day-care center, but she says she doesn’t have $3,100. She used what savings she had to move from Pennsylvania to New Jersey when a job opened up in her field.

“We’re just trying to get back on our feet, and we’re now slammed with all these bills we owe,” said Ryan, who lives with her boyfriend.

Congress is trying to fix this problem so that low-income Americans don’t drop their health insurance because they can’t afford it. The $1.9 trillion stimulus package that is expected to pass by mid-March would forgive these tax bills. (Under a deal reached late Friday, households earning under $150,000 would also be spared taxes on the first $10,200 in unemployment income.)

Politicians and health experts say the United States needs to keep as many people on health insurance as possible during the deadly pandemic. But this subsidy issue that Ryan and millions of others are now facing is making that difficult.

Low-income workers and the self-employed typically turn to Affordable Care Act marketplaces to buy health insurance. If workers earn between roughly $18,000 and $51,000, they are eligible for a government subsidy to make plans more affordable. But the catch comes if they signed up for health insurance in November or December 2019 – before the pandemic became a national emergency.

People like Ryan estimated their earnings for 2020 and ended up being way off, largely because of the extra $600 a week that Congress gave unemployed people from April through July. Workers like preschool teachers, teacher’s aides, waiters and the self-employed often ended up making more on unemployment last spring than at their regular jobs. Now they owe the government money to repay some of their health subsidy.

This happens every year to some low-income Americans, but experts say it is particularly widespread now since so many people’s livelihoods were disrupted dramatically.

About 3.2 million low-income Americans owed the government money on their health subsidy in 2018, according to Internal Revenue Service data. That number is expected to be above 5 million for 2020, according to estimates from the Joint Committee on Taxation and the Kaiser Family Foundation.

“This just goes to show how complicated it is to subsidize people’s health care through the tax system,” said Larry Levitt, executive vice president for health policy at the Kaiser Family Foundation. “In the midst of tremendous uncertainty for people, it would certainly be helpful if they didn’t have to pay back subsidies because they misstated their income.”

For 2021, the stimulus bill says anyone who is on unemployment would automatically qualify for the full health insurance subsidy. If the legislation is enacted, these Americans will not get a shock tax bill next year, and they should be able to afford health coverage now.

The Biden administration has also reopened sign-ups for health insurance. Americans can enroll in the Affordable Care Act marketplace from Feb. 15 through May 15.

Advocates for the poor welcomed these latest initiatives by Congress and the White House, but they lamented that it has taken a year for lawmakers to figure out how to help.

“We’ve been in a pandemic since March, and Congress hasn’t done anything until this point to give more people access to health insurance,” said Tara Straw, a senior health policy analyst at the left-leaning Center on Budget and Policy Priorities.

And while there is a fix on the way, some Americans like Shawn McCreary of Doylestown, Pa., have already paid their taxes – and the health insurance credit penalty.

“This year I owed $3,565 in federal taxes, apparently $1,300 of which is from the health-care exchange ‘overpayment’ because my unemployment was more than my projected income in November of 2019,” said McCreary. “This was a complete surprise to me.”

McCreary, 36, is a special-education teacher. He was working as a substitute when the pandemic caused most schools to shut down last March. Since he was a substitute teacher, he was not on the school district’s insurance plan. He had purchased insurance through the health exchange and says he even tried to overestimate his 2020 income to avoid paying a penalty later on, but he ended up being unemployed for most of the year.

As an asthmatic, McCreary already has large health bills. He’s also been cautious about returning to the classroom until he has been vaccinated. His grandmother died of covid-19 in July.

“The pandemic has really completely reshaped my life from top to bottom,” McCreary said. “I don’t have $3,500 I can just hand back to the government. I almost wish they had just paid me less to begin with.”

McCreary filed his taxes last month and started a payment plan with the IRS. He will probably have to file an amended return if Congress passes the stimulus bill, which would waive the money he owes on the health subsidy.

For the unemployed, this is one more twist in a harsh year. Health experts say they just hope the stimulus passes soon and people will realize they can refile.

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Senate Democrats announce deal on unemployment insurance, allowing Biden bill to move forward

InternationalMar 06. 2021Senate Majority Leader Chuck Schumer, D-N.Y., appears at a news conference on Capitol Hill last month. Washington Post photo by Salwan Georges.

By Erica Werner, Jeff Stein, Tony Romm
The Washington Post

WASHINGTON – Senate Democratic leaders reached an agreement over unemployment benefits with moderate Democratic Sen. Joe Manchin III of West Virginia, late Friday, ending a nine-hour standoff that threatened to derail action on President Joe Biden’s $1.9 trillion coronavirus relief bill.

The agreement would extend the existing $300 weekly unemployment benefit through Sept. 6, as well as provide tax relief on up to $10,200 in unemployment benefits for households making under $150,000.

“We have reached a compromise that enables the economy to rebound quickly while also protecting those receiving unemployment benefits from being hit with [an] unexpected tax bill next year,” Manchin said in a statement.

The deal revived action on Biden’s relief bill, his first major legislative initiative, which had stood in limbo in the Senate over hours of uncertainty after an earlier attempted compromise on unemployment insurance unraveled – raising questions about Democrats’ ability to govern with a 50-50 Senate.

With Manchin on board, Democrats are now within reach of passing the sweeping legislation that would send out a new round of $1,400 stimulus checks, $350 billion to cities and states, $130 billion to schools, billions for a national vaccine program and more – although they’ll first have to plow through dozens of other amendments in a chaotic process known as a “vote-a-rama” certain to last into the early morning hours Saturday.

“The president supports the compromise agreement, and is grateful to all the senators who worked so hard to reach this outcome,” said White House press secretary Jen Psaki. “It extends supplemental unemployment benefit into September, and helps the vast majority of unemployment insurance recipients avoid unanticipated tax bills. Most importantly, this agreement allows us to move forward on the urgently needed American Rescue Plan.”

The legislation would still have to go back to the House for final passage before getting sent to Biden to sign, something that’s expected to happen early next week. House Speaker Nancy Pelosi, D-Calif., has guaranteed the House will pass the Senate’s version of the bill, though House liberals were voicing growing discomfort over changes pushed by Senate moderates they said watered down the bill.

The announcement of the final deal with Manchin capped a confounding day that began with Senate Majority Leader Charles Schumer, D-N.Y., vowing passage of Biden’s relief bill – only to watch the process go off the rails as it became clear Manchin was not on board with an earlier version of the unemployment insurance agreement.

As originally passed by the House, the relief legislation would have increased the existing $300 weekly benefit to $400 and extended it through August. The benefits are now set to expire March 14, which Democrats and the Biden administration are eyeing as the deadline for passing the wide-ranging relief bill into law.

But Manchin had voiced persistent concerns about increasing the unemployment benefit over $300 per week, suggesting that doing so could keep workers from rejoining the workforce just as the economy tries to get back on its feet. So Friday morning Democratic aides announced that an agreement had been reached on a compromise amendment, to be offered by Sen. Thomas Carper, D-Del., that would keep unemployment benefits at $300 a week and extend them through September, while also making the first $10,200 in benefits nontaxable to avoid tax shock hitting some Americans who’ve received the benefits.

Instead of clearing the way for action on the legislation, however, the supposed deal brought the Senate floor to a standstill for hours as Manchin huddled with Republicans who were offering competing amendments – and multiple other senators and aides milled about with little clear idea of what was happening.

In its final form, the deal extends the $300 weekly benefit to Sept. 6, instead of through the end of September as proposed Friday morning, and makes tax relief available only to those with household incomes below $150,000.

Despite Democrats’ ultimate success in breaking the logjam, the baffling developments underscored the challenges Biden faces in getting his agenda through Congress given the exceedingly narrow Democratic majorities in both chambers. After disavowing bipartisan negotiations to pass a sweeping relief bill opposed by the GOP, Biden confronted a scenario where a single balky moderate Democrat had the ability to upset his plans.

As the day wore on Friday , Sen. John Thune, R-S.D., and others jokingly expressed concern for Manchin, who single-handedly had the ability to throw Biden’s first major legislative effort off-track.

“I hope the Geneva Conventions applies to him,” Thune said.

“Save Joe Manchin!” said Sen. Lindsey Graham, R-S.C.

Even after the deal was announced around 8 p.m. Friday evening, floor action was delayed as senators worked on setting up an amendment schedule for the night. In the process the Senate broke a record for longest roll-call vote ever, since a vote that opened at 11:03 a.m. Friday morning on an motion by Bernie Sanders, I-Vt., aimed at restoring the $15 minimum wage was never officially gaveled shut even though it was headed for defeat. The previous record of 10 hours and 8 minutes for a roll-call vote was set in 2019 on a defense measure.

Senate Finance Chairman Ron Wyden, D-Ore., said in an interview that he had spent the day in several conversations with Manchin and Schumer about the unemployment provisions in the bill. While disappointed the weekly benefit amount would not grow, Wyden praised the extension of benefits through the first week of September, expressing concern about the implications had they been set to expire in August with Congress out of session.

“We felt very strongly about avoiding this August cliff … having a cliff in August is a prescription for chaos. Our priority was avoiding that; we have been able to do that,” Wyden said. He added: “These are not my first choices. Not by a long shot.”

The extended unemployment benefits are just one piece of a much larger bill that Biden insisted anew on Friday was critical to shoring up the economy and helping to stabilize the health-care system.

“The rescue plan is absolutely essential to turning this around, getting kids back to school safely, giving a lifeline to small businesses and getting the upper hand on covid-19,” Biden said at an event at the White House.

Republicans, however, attacked the legislation as a liberal wish-list and said the chaotic events of Friday demonstrated the dangers of attempting to govern on a partisan basis in a narrowly divided Congress.

“That’s why reconciliation is a bad idea. They should have worked with us,” said Sen. Rob Portman, R-Ohio, referring to the “budget reconciliation” process Democrats are using to push the legislation through the Senate on a simple majority vote, instead of with the 60 normally required.

Portman had authored an alternate unemployment insurance amendment that would have extended the $300 weekly benefit into mid-July, and had spoken with Manchin throughout the day Friday to try to bring him on board, ultimately unsuccessfully.

The uncertainty around the unemployment insurance provisions arose as the Senate was about to plunge into a grueling “vote-a-rama,” which involves votes on dozens of amendments, one after another, hour after hour until senators exhaust themselves and stop.

The first to be offered was by Sanders on the minimum wage. The complicated rules governing reconciliation bills prohibit certain items without a particular budgetary impact, and the Senate parliamentarian ruled last month that the minimum wage increase, a top priority for many liberals, did not pass that test.

The Senate was poised to defeat Sanders’s move, with Republicans united against it along with eight Democrats – but the vote was held open for hours to accommodate the drawn-out behind-the-scenes drama over jobless benefits.

Schumer vowed to stay in session until Democrats passed the underlying bill.

“We need to get this done. It would be so much better if we could in a bipartisan way, but we need to get it done,” Schumer said. “We’re not going to make the same mistake we made after the last economic downturn, when Congress did too little to help the nation rebound. . . . We’re not going to be timid in the face of big challenges.”

Minority Leader Mitch McConnell, R-Ky., lambasted Democrats for using a partisan procedure to rush through the giant legislation after Biden campaigned on promises to unify the nation – but conceded there was little Republicans could do to stop it.

“In this supposed new era of healing leadership we’re about to watch one party ram through a partisan package on the thinnest of margins,” McConnell said. “Go figure.”

Friday’s debate kicked off after Sen. Ron Johnson, R-Wis., forced Senate clerks to read the entire 628-page bill aloud, a process that took almost 11 hours and concluded around 2:05 a.m. Friday. That came after the Senate voted 51 to 50 on party lines Thursday afternoon to open debate, with Vice President Harris breaking the tie. The partisan vote to start debate was a likely sign of the final outcome, although Sen. Lisa Murkowski, R-Alaska, said she was still examining the bill after Democrats made some last-minute changes that could help her state and others.

The last-minute wheeling-and-dealing was a sign of Democratic leaders’ determination to hold together to pass Biden’s first major piece of legislation. It would be one of the largest bills ever enacted in congressional history, and its passage would stand as an early success for the new president.

Even before the late change on unemployment benefits, Biden and Democratic leaders already had agreed to some other changes aimed at addressing concerns raised by moderate Democrats, including narrowing eligibility for stimulus payments and earmarking some of the state and local funding for capital projects.

Congress passed a series of bills last year totaling some $4 trillion to fight the pandemic, including $900 billion in December, and Republicans said that was more than enough.

The debate came as the U.S. economy saw encouraging news on Friday in a jobs report showing 379,000 jobs had been added in February. Still, the unemployment rate remained dramatically elevated above pre-coronavirus levels with more than 9 million Americans remaining jobless.