Q: What happens if my income changes and my premium subsidy is too big? Will I have to repay it?
A: Subsidy amounts are estimated based on prior-year income and projections for the year ahead, but they actually depend on your income in the year that you’re getting subsidized health insurance coverage; if recipients end up earning more than anticipated, they could have to pay back some of the subsidy. This issue is discussed in a recent IRS publication (see the final column on page 30383, continued on page 30384) which clearly explains that they will expect people to pay back subsidies that are in excess of the actual amount for which the household qualifies.
However, the IRS will “consider possible avenues of administrative relief,” including such options as payment plans and the waiver of interest and penalties for people who must return subsidy over-payments.
In addition, the portion of an excess subsidy that must be repaid will be capped for families with incomes under 400 percent of Federal Poverty Level. This could catch people off guard, especially since the tax credits will be paid directly to the insurance carriers, but if overpaid, they would have to be returned by the insureds themselves.
The exchanges seem to be well aware of the issue, and are likely prepping their navigators to make sure that enrollees understand the need to state income as accurately as possible and the requirement that subsidy over-payments will have to be repaid.