What happens if my income changes and my premium subsidy is too big? Will I have to repay it?


Q: What happens if my income changes and my premium subsidy is too big? Will I have to repay it?

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A: Monthly premium subsidy amounts (ie, the advance premium tax credit – APTC – that’s paid to your insurer each month to offset the cost of your premium) are estimated based on prior-year income and projections for the year ahead, but the actual premium tax credit amount to which you’re entitled depends on your actual 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 can catch people off guard, especially since the tax credits are paid directly to the insurance carriers, but if overpaid, they must be returned by the insureds themselves.

The issue of reconciling APTCs was explained in a 2013 IRS publication (see the final column on page 30383, continued on page 30384) which clearly explains that they do expect people to pay back subsidies that are in excess of the actual amount for which the household qualifies.

But the portion of an excess subsidy that must be repaid is capped for families with incomes up to 400 percent of federal poverty level. Details regarding the maximum amount that must be repaid, depending on income, are in the instructions for Form 8962, on Table 5 (Repayment Limitation).

There are some scenarios in which repayment caps do not apply:

  • If a person projected an income below 400 percent of the poverty level (and received premium subsidies during the year based on that projection) but then ends up with an actual income above 400 percent of the poverty level (ie, not eligible for subsidies), the entire subsidy amount that was paid on their behalf has to be repaid to the IRS.
  • If a person projected an income at or above 100 percent of the poverty level (and received premium subsidies) but then ends up with an income below the poverty level (ie, not eligible for subsidies), none of the subsidy has to be repaid. This is confirmed in the instructions for Form 8962, on page 8, in the section about Line 6 (Estimated household income at least 100% of the federal poverty line).

But there are new rules as of 2019 that make it less likely for people with income below the poverty level to qualify for premium subsidies based on income projections that are above the poverty level. This is explained in more detail here.

The IRS noted that they would “consider possible avenues of administrative relief” for tax filers who are struggling to pay back excess APTC, including such options as payment plans and the waiver of interest and penalties for people who must return subsidy over-payments. If you find yourself in a situation where you must pay back a significant amount of the premium subsidies you received during the prior year, contact the IRS to see if you can work out a favorable payment plan/interest arrangement.

GOP lawmakers considered various proposals in 2017 that would have eliminated the repayment limitations, essentially requiring anyone who received excess APTC to pay back the full amount, regardless of income. But those proposals were not enacted.

How many people have to repay subsidies?

For 2015 coverage, subsidies were reconciled when taxes were filed in early 2016. The IRS reported in early 2017 that about 3.3 million tax filers who received APTC in 2015 had to repay a portion of the subsidy when they filed their 2015 taxes; the average amount that had to be repaid was about $870, and 60 percent of people who had to pay back excess APTC still received a refund once the excess APTC was subtracted from their initial refund. [IRS data for premium tax credit reporting is available here; as of 2019, data had only been reported for the 2014 and 2015 tax years.]

But on the opposite end of the spectrum, about 2.4 million tax filers who were eligible for a premium tax credit ended up receiving all or some of it when they filed their return. These are people who either paid full price for their exchange plan in 2015 but ended up qualifying for a subsidy based on their 2015 income, or people who got an APTC that was less than the amount for which they ultimately qualified. The average amount of additional premium tax credit paid out on tax returns for 2015 was $670.

[The IRS noted that it was very uncommon for people to pay full price for their coverage and wait to claim their full refund on their return: 98 percent of the people who claimed a premium tax credit on their return had received at least some APTC during the year.]

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Robin
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Robin

I was in formed by my I seance that I no longer receive a subsidy for my insurance premium and now they are telling me I own 1700 a month for the insurance. I have been receiving a subsidy for a few years and it always carried over I don’t understand what changed this year. I did not change companies either

Louise Norris
Editor

Hi Robin, I’d need more details to tell you exactly what happened with your subsidy. It’s based on your age, your zip code, the number of people in your tax household (and how many of them are enrolling in the plan), and your income. You can play around with our subsidy calculator to see how changing those factors affects the subsidy amount: https://www.healthinsurance.org/obamacare/subsidy-calculator/ From one year to the next, your subsidy eligibility and amount can change if the cost of the benchmark plans (second-lowest-cost silver plan) in your area changes. So it’s possible that a new, lower-cost insurer entered the… Read more »

Waltlasher@ymail
Guest
Waltlasher@ymail

To whom it may concern… My wife is disabled, and it took 3 years for her to qualify for benefits which left us in a tough situation living on one income,further complicated by the fact that l could qualify as disabled myself but both of us could not have survived without at least one person working. So we somehow made it through,but now must spend a large portion of her back pay repaying the subcity that was extended to us! What can we do to minamize the damages without distroying our credit scores? And falling back into debt again.

Louise Norris
Guest

This is a tough situation. My best recommendation is that you reach out to the IRS directly and ask them to help you establish a payment plan that will allow you to repay the excess premium tax credit on terms that will work with your finances. Excess premium tax credits can be collected by the IRS just like any other tax debt (unlike the individual mandate penalty, which has much more limited collection procedures), but the IRS has shown a willingness to work with tax filers to make it manageable: https://www.treasury.gov/tigta/auditreports/2016reports/201633071fr.pdf

Lorraine J Costanzo
Guest
Lorraine J Costanzo

I underestimated my income for Healthcare subsidy by $4796. I estimated income at $16800. and it turned out to be $21872. because I worked 2 months before retiring.. will I have to payback the whole subsidy or the $4796. ?? I can’t believe I’ll be in debt again over this ! Thank you for your help.

Louise Norris
Editor

Hi Lorraine, You should only have to pay back at most $300 of your subsidy. You’ll use Form 8962 to reconcile your subsidy when you file your taxes. The instructions for that form are here: https://www.irs.gov/pub/irs-pdf/i8962.pdf (see Table 5 on page 16 of the instructions). The form will help you to calculate what your subsidy should have been (based on an income of $21,872), and then they’ll compare it with the subsidy that was paid on your behalf during the year. They do have a repayment requirement if it turns out that your subsidy was too large, but they have… Read more »

Lorraine J Costanzo
Guest
Lorraine J Costanzo

Thank you so much for the reply !

Michelle
Guest
Michelle

So, last year I had mass health for part of the year, but then I ended up earning way more than I thought I was going to for the entire year. So pretty much I shouldn’t have had mass health but forgot to report my earnings. Am I going to be fined on my taxes and if so what will happen?

Jack
Guest
Jack

Am I correct with that understanding that the tax credit is based on the total yearly income and not just the months I needed marketplace coverage? I worked a temp job for a few months and enrolled in the marketplace. My income for those months was accurately reported. However, when I was found a full-time job with insurance I no longer needed the marketplace and my income went up. Now it appears I have to repay the tax credits even though when I was enrolled in the marketplace my income made me eligible. Seems the tax credits and my income… Read more »

Louise Norris
Guest

Eligibility for Medicaid is calculated in real-time, based on current monthly income. But it’s different for premium subsidies. They’re a tax credit, and they have to be reconciled on your tax return based on your total annual income. They do prorate it on a monthly basis, so it’s possible to get a premium tax credit for just a few months, as long as your total income for the year doesn’t exceed 400% of the poverty level. But if you exceed that threshold, there’s no premium subsidy available, even if you earned all of your income during just a small portion… Read more »

Jack
Guest
Jack

Very helpful. Thank you!

Stephanie
Guest
Stephanie

How does that work? My husband was out of work for 8 months and purchased health insurance for those 8 months for which we received a tax credit. Once he was employed we terminated the insurance. His employment and my new job with a higher salary has us looking at repaying most of that tax credit even though our income was very low during those months.

Stephanie
Guest
Stephanie

I should clarify that my new job started AFTER we terminated the insurance.

Louise Norris
Editor

It’s frustrating to be in that situation, for sure. But it’s a tax credit based on annual income, regardless of when the income is earned during the year. If they hadn’t made it an advanceable tax credit, people would have had to wait until they filed their tax return to claim any of it. But it would be unrealistic to expect most people to be able to front the whole cost throughout the year, and then get the whole tax credit as a refund from the IRS. So they allow people to take it in advance, throughout the year –… Read more »

Joyce
Guest
Joyce

We went over the poverty level by just a couple of thousands. We are self-employed and underestimated our income, now the IRS is making us pay back over $12000.00 for one year and $14000.00 for another year. We can’t pay that much back at one time and now they are charging penalties and interest on top of that and we will never get this paid off. Is there any help with this?

Louise Norris
Editor

Hi Joyce, This is a tough situation, for sure. I assume you meant you went over 400% of the poverty level, and thus have to pay back the entire subsidy? If one of the years in question is 2019, you may still be able to reduce your MAGI to get it into the subsidy-eligible range by making contributions to your retirement accounts. Here’s how that works: https://www.healthinsurance.org/faqs/with-my-income-im-barely-over-the-eligibility-limit-for-a-premium-subsidy-is-there-anything-i-can-do-to-lower-my-income-so-i-become-eligible/ For years before 2019, I don’t think there’s much you can do to change your income or the subsidy repayment amount. But you can reach out to the IRS directly and ask them… Read more »

Brandi Trella
Guest
Brandi Trella

For a family of 3 we only used the APTC for 4 months. We were anticipating making 62,000 but I got a new job and we made 72,000. this still puts us at 357% of poverty level. What will we owe?

Louise Norris
Editor

When you complete Form 8962, you’ll figure out what your premium tax credit should have been, based on 357% of the poverty level. You’ll have to repay the difference to the IRS. But with an income of 357% of the poverty level, the most you’ll have to repay is $2,650, regardless of how much your APTC overage actually ended up being — see Table 5 in the instructions for Form 8962: https://www.irs.gov/pub/irs-pdf/i8962.pdf

Tony
Guest
Tony

Hi, I overpaid for my Obamacare, not underpaid. I thought my annual income would be more than double what it actually was. Will I get a big tax refund as a result?

Louise Norris
Editor

The amount of your subsidy will be adjusted to reflect your actual income when you file your taxes. As long as your income was still in the subsidy-eligible range (ie, not so low as to be Medicaid-eligible), the additional premium tax credit that you should have received will be given to you by the IRS as a lump sum. Assuming we’re talking about 2019, this subsidy calculator tool will show you what your subsidy amount should have been, so you can get an idea of how much you might receive: https://www.kff.org/interactive/subsidy-calculator-2019/ You’ll use IRS Form 8962 to reconcile your premium… Read more »

wendy
Guest
wendy

We had the subsidy for 2018 for the entire year, but in November a family property that my brother and I inherited , which was sold , but owner financing. The new owner decided to pay the loan off-which but us way over 400%- we now owe the entire subsidy back $32,000.00. We would not of had insurance for those previous months, but for the unexpected sale we are penalized. We would not mind just having to pay back for the two months, but it is not fair to pay for the entire year.

Louise Norris
Guest

I’m sorry you’re in a tough spot with this. But the premium subsidy is a tax credit and eligibility is based on your annual income — regardless of whether that income comes in steadily throughout the year, or in a lump sum. The way the IRS (and the ACA) looks at it, your income for the year ended up being high enough that you can afford to pay for coverage on your own, without a tax credit. In reality, that might be far from the truth… I don’t know the specifics in terms of how much your income actually ended… Read more »

Paula
Guest
Paula

We have to pay back the APTC and have a payment arrangement. I notice the IRS is adding penalties and interest. I thought it was determined the ACA could not be considered a tax; and, therefore, would not be treated as such. How are they charging interest and penalties?

Louise Norris
Editor

The Supreme Court ruled in 2012 that it is a tax, and is thus constitutional because it’s within Congress’s powers of taxation (here’s that ruling: https://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf ) — Incidentally, this is the crux of the current lawsuit in which 18 GOP-led states are seeking to overturn the entire ACA (including the protections for people with pre-existing conditions, and the subsidies the law provides). They’re arguing that without the tax (which was eliminated at the start of 2019), the individual mandate is unconstitutional, and thus the entire law ought to be overturned. But getting back to the penalty/tax. Even though SCOTUS… Read more »

Dean
Guest

I will lose my employer health care in May (year 2020) and will decide to enroll in Obamacare at that point. I will qualify for a subsidy on my premiums based on my current projected income. However this coming December, (year 2020) I will take a retirement distribution from my 401K (to buy a house) that will put my income over the 400 percent of the poverty level to receive a subsidy for the year. Now at the end of the year, will I have to pay back all of the tax credit from May to the end of the… Read more »

Louise Norris
Editor

We always recommend that you consult with a tax advisor about your specific circumstances. But as general background, premium tax credit eligibility is based on your income for the full year. (Note that income refers to an ACA-specific MAGI calculation: https://www.healthinsurance.org/glossary/modified-adjusted-gross-income-magi/ ).
If your MAGI goes over 400% of the poverty level (based on the *prior* year’s poverty level numbers), you ultimately won’t be eligible for any subsidy at all for the whole year, which means you’d have to pay it all back. This is true even if all of your income is received on the last day of the year.

Al Badoux
Guest
Al Badoux

I qualified for tax assistance and joined the Marketplace Health Care Plan as of January 2019. In December 2019 I received a back pay settlement check from the government for my disability claim which was filed mid 2016. Upon filing 2019 taxes I was told I need to repay $9000.00 to cover the subsidies. I have no issues paying from the date I became “Unqualified” for help (Dec 2019) but dont feel I must pay for the previous 11 months as I was intact qualified low income. Any thoughts on this ??

Louise Norris
Guest

Unfortunately, there’s not really a way around this. Premium subsidies are a tax credit based on annual income (as opposed to Medicaid eligibility, which is based on monthly income). With other income-based tax credits, eligibility is determined after the end of the year, when you file your tax return and your income for the year is known. But people are allowed to take their premium tax credits in advance, throughout the year, paid directly to the insurance companies (there is also an option to pay full price and just claim the tax credit on your tax return, the way you… Read more »

Randy
Guest
Randy

I was unemployed for the first 5 months last year and received 4200 in subsidies for that period. I was hired in May and cancelled Obama care in June and didn’t receive anymore subsidies. I went on to earn 32K the remainder of the year. What will I owe?

Louise Norris
Guest

I assume you projected an income of some amount for the year (even though you weren’t making an income for the first part of the year?) since you were found to be eligible for premium subsidies, which generally require an income of at least the poverty level. But reconciling your subsidy on your tax return is going to depend on how much your actual income for the year differs from the income that you projected when you enrolled in the health plan. If your actual income ended up quite a bit higher than you had projected, you’ll have to pay… Read more »

j ab
Guest
j ab

will my inheritance from my dad affect my MAGI

Louise Norris
Editor

We recommend that you consult with a tax advisor who can give you detailed advice based on your specific circumstances. But in general, the federal estate tax is only applicable to multi-million dollar estates, and there’s not a federal inheritance tax: https://www.bankrate.com/taxes/do-you-have-to-pay-tax-on-inheritance/ But if you inherit assets which you then sell, you might end up with capital gains, which would be added to your income and thus increase your MAGI. It will basically come down to whether or not your AGI is affected by the inheritance. If it is, then your MAGI is likely to also be affected, as ACA-specific… Read more »

j ab
Guest
j ab

thank you

Mark
Guest
Mark

My tax program calculates that I have to pay an additional $1600 due to a higher income than expected. I understand this part. What I don’t understand is how to actually repay the government. Will this be deducted from my tax refund (slightly over $2000)? Or do I need to write a check?

Louise Norris
Editor

If you’re otherwise owed a refund, the repayment of the premium tax credit will just be subtracted from your refund. The subsidy is just like any other refundable tax credit, in that it will add to your refund if the credit paid on your behalf during the year was too small, and it will subtract from your refund if the credit paid on your behalf during the year was too large. (and people who wouldn’t otherwise get a refund and also have to pay back some or all of their premium tax credit are required to send the money to… Read more »

Mark
Guest
Mark

I guess my difficulty in understanding is that the 1120 only shows my refund due. You’re saying I just file everything and they IRS will deduct my subsidy correction and only refund the difference? i.e. I’m owed $2000 on the 1120 but I have to repay $1000 in subsidies will result in a $1000 refund check?

Lydia Fernandez
Guest
Lydia Fernandez

on my 2019 taxes I will receive a sizable refund, but I was over subsidized on my ACA by $497, will they deduct that from my refund or do I have to pay it back somehow

Greg
Guest
Greg

I am helping a couple do their taxes. They had insurance through the marketplace. They received their 1095 and it shows that they received healthcare worth 991 a month (with the listed silver plan at 1350 a month). They received a subsidy of $895 per month meaning they only paid $96 a month for insurance. They made more income than expected($90000) AGI putting them a 550% over the poverty line for their family of two. As I understand, they will have to pay back the entire subsidy of $10740($895 times twelve months). Does this seem to be correct?

Louise Norris
Editor

Yes, that’s correct. If their ACA-specific modified adjusted gross income ended up above 400% of the poverty level, they’ll need to repay all of the premium tax credit that was paid on their behalf in 2019.
Here’s how MAGI is calculated under the ACA: https://www.healthinsurance.org/glossary/modified-adjusted-gross-income-magi/
It’s unlikely that their MAGI can be brought down into the subsidy-eligible range, given how much above it they are. But here’s how that works, just in case: https://www.healthinsurance.org/faqs/with-my-income-im-barely-over-the-eligibility-limit-for-a-premium-subsidy-is-there-anything-i-can-do-to-lower-my-income-so-i-become-eligible/ I would recommend that they consult with a CPA, who might be able to find a way to make it work for them.

Mo
Guest
Mo

I was a student in college and under my parents insurance. I graduated and got a 60K job but continued to be under my parents insurance. Our tax person did not educate us of all these inusrance tax credit issues. 2 years later the IRS sends me a letter stating i owe them $30,000 (you read that right) for using obamacare in 2017 and 2018. Funny thing is i never used the insurance. I was 25 years old in 2017 and 26 in 2018, so i was eligible to use my parents insurance. Is there any way i can fight… Read more »

Mohammed Hussain
Guest
Mohammed Hussain

Worth to note that my tax accountant mentioned since i was 26 and younger, my dad is the primary insurace holder so he recieved all the premium credit. Since my father is low income, we should not owe anything. But the IRS is still coming after me. Any help is appreciated.

Thank you for this website. I searched the internet and this is the most useful info i could find.

Louise Norris
Guest

This is a tough situation, and I’m sorry you’re stuck in it! I’m guessing that your income combined with your parents’ income in 2017/2018 would have been more than 400% of the poverty level (ie, $81,680 in 2018)? If that’s the case, the household shouldn’t have received a premium tax credit at all if they kept you on the family policy, since your income pushed the household over the upper cap for subsidy eligibility (your parents probably would have been eligible for a subsidy — or possibly Medicaid — if the policy had just covered them, or any other siblings… Read more »

Mohammed Hussain
Guest
Mohammed Hussain

I really appreciate you taking the time to help out and explain things to people who need it the most.

We are a family of 5, all of us were on it. Technically, the combined total income of all 5 was 116K, so below the 120K of 400% for a family of 5. Shouldnt that make a difference?

Last auestion, if i was 26 (2018), was I eligible to be on the family insurance or was i too old?

Again, i am incredibly thankful for you.

Laurie
Guest
Laurie

I recieved a withdrawl from my pension, raising my income level. I had medical bills to take care of, and still do with this money I received. Now I have lost my job due to the worldwide virus. Will I still be penalized to pay back the entire amount??

Tom
Guest
Tom

Hi – our income exceeded projections by about $15,000 in 2019. We do still qualify for a subsidy but I will need to repay a small amount. My question is in regard to the fact that we had qualified for a zero deductible health plan but now I believe this would not be the case at higher income. Will we have to pay back an amount equal to what the deductible would have been if calculated at the correct income?

Louise Norris
Editor

No. Cost-sharing reductions (CSR) do not get reconciled on tax returns. There is no provision requiring people to pay back anything in regards to cost-sharing reductions they received during the year, regardless of whether their actual income for the year ends up above the cutoff for CSR eligibility.

L S
Guest
L S

great info! Our question: self-employed new business that hasn’t made any income yet. We got thrown to medicaid for 2020. We were on track to make income this year but the current economy likely will nix that. If we find some other way to make money this year, under what $ would we have to pay back Medicaid premium? Household of 2, both in our business.

Louise Norris
Editor

They don’t require you to pay back anything for Medicaid if your annual income ends up above the Medicaid eligibility threshold. If and when your income bumps up again, you can contact the state Medicaid office to let them know. If your income is above the Medicaid threshold, you’ll then qualify for a special enrollment period to purchase a plan in the exchange, triggered by your loss of Medicaid eligibility. But you won’t have to pay back anything for the time while you were covered by Medicaid. Best wishes for success with your business!

L S
Guest
L S

Thank you. I guess what I need to know is that magic date & number…”Medicaid eligibility” level, given that we have incurred business deductions not yet taken due to no sales that would reduce business income variably/ annually before we even see a dime of personal income. If you mean 100-400% poverty level, we could be in & out of that range month to month so indeed, would need to wait to see the whole year’s picture. So can we be penalized by waiting? The ACA plans have huge deductibles even with PTC that our medical situation would cost us… Read more »

Louise Norris
Editor

CSR is still available. You can get an idea of how those plans work by using the plan browsing tool for your state’s exchange. You can enter different income levels and see how the available silver plans change. I assume you’re in a state that’s expanded Medicaid, since you mentioned that you’d qualified for Medicaid. So if you enter an income equal to a little more than 138% of the poverty level (but not more than 150%) you’ll see the plans with the strongest CSR benefits. They are much less strong at 250% of the poverty level, which is where… Read more »