Younger retirees can face a ‘phantom tax’ on Marketplace health insurance — here’s how to avoid it
Since most Americans aren’t eligible for Medicare before age 65, many younger retirees rely on Marketplace health insurance, which offers lower monthly premiums through the end of 2025 thanks to boosted tax breaks. But retirees can face a costly tax surprise without proper planning, experts say.
As of open enrollment 2024, more than 5.1 million Americans aged 55 to 64 had Marketplace coverage, up from roughly 3.4 million in 2021, according to data from the Kaiser Family Foundation.
In 2021, Congress temporarily enhanced the premium tax credit, which allows Marketplace enrollees to lower monthly premiums upfront or claim the tax break when filing their return. The legislation covered 2021 and 2022, but lawmakers extended that benefit through 2025.
With Marketplace benefits tied to earnings, younger retirees can leverage lower premiums after leaving the workforce. But some are subject to a “phantom tax” when income rises, according to Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
More from Personal Finance:
Biden may start forgiving student debt in October
Working 10-to-4 is the new 9-to-5, traffic data shows
Marketplace insurance may get more expensive — unless Congress extends this tax break
“These are very valuable credits,” and several financial moves in retirement could impact them, Lucas warned. “You have to be extremely careful.”