Will I have to repay excess premium subsidy if my income changes?
TL/DR –
If your income increases during the year and you’ve received advance payments of the premium tax credit (APTC) for health insurance, you may have to pay back some of these premiums during tax season. This is due to the possibility of receiving excess APTC due to the projection you made for your household income. Avoiding excess APTC can be done by accurately projecting your income at the time of enrollment and updating your Marketplace account if your income changes during the year.
If you received advance payments of the premium tax credit (APTC) for health insurance you purchased last year, and your income increased, you might have to repay part of your premium tax credit.
What is excess APTC?
Most people who enroll in health coverage through the Marketplace are eligible for premium tax credits. The government pays these tax credits in advance (APTC) directly to the insurance company each month, reducing the individual premiums. However, if your income increases, you may have to repay some APTC.
Your premium tax credit depends on your modified adjusted gross income (MAGI). The APTC amount is based on projected income, which may not end up being accurate. If your APTC was more than actually allowed, the federal government paid excess APTC on your behalf for the last year. This amount must be repaid to the IRS when you file your tax return.
How much of the excess APTC will I have to repay?
The amount of APTC to be repaid depends on how much excess APTC was paid, your household income, and your tax filing status. The repaid amount is limited by a cap, which depends on your income and filing status.
For households with income above 400% of the federal poverty level (FPL), they have to repay all of the excess APTC. The repayment caps for excess APTC only apply if your income is less than 400% of the FPL.
Is there a cap on how much I have to pay back?
Yes, the maximum amount of excess APTC you’ll have to repay if your 2023 household income was less than 400% of the 2022 federal poverty level is given in the table below:
Excess APTC repayment caps for the 2024 coverage / tax year are available here.
How can I avoid having excess APTC?
To avoid excess APTC, project your income accurately when you enroll, and update your Marketplace account if your income changes during the year. If your income is going to be higher or lower than projected, you can modify your income projection to reduce your subsidy amount. Furthermore, contributions to a pre-tax retirement account and/or a health savings account will reduce your MAGI, which determines your premium tax credit eligibility.
What happens to my Obamacare premium subsidy if I overestimated my income?
If your actual income for last year was lower than projected, you may be able to claim additional premium tax credit when you file your taxes. For example, if you projected an income of $40,000 but it ended up being $35,000, your actual premium tax credit would be higher, and you can claim the difference when you file your taxes.
What if I switched from a Marketplace plan to employer-sponsored health insurance mid-year?
If you switch to an employer-sponsored health plan later in the year, you may have to repay some or all of the subsidies received for the individual-market coverage. It all depends on your total household income for the year. Once you become eligible for an affordable health insurance plan through your employer, you’re no longer eligible for premium subsidies.
How many people have to repay premium subsidies?
Millions of people have to repay excess APTC each year, but there are also millions who are owed additional premium tax credits.
What happens if I don’t reconcile my premium tax credit?
If you don’t reconcile a prior year’s APTC (using Form 8962 with your tax return), you will be ineligible to receive APTC the next year. To prevent people from inadvertently filing without reconciling, the IRS no longer accepts e-filed returns missing Form 8962 if premium tax credits were provided.
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