Affordable Care Act Tax Credits: The Pay Back Requirements For Underestimating Annual Income

Find out what your pay back obligations are if you underestimate your annual income and receive higher premium assistance payments than you are entitled to.

When you apply for health insurance through your Affordable Care Act health insurance exchange (also called Obamacare), you need to estimate what your family income for the year will be. If you estimate it will be below 400% of the federal poverty level for a family your size, you will be eligible to receive a subsidy to help pay your monthly insurance premiums. This is officially called the premium tax credit. The amount of the premium assistance is based on your estimated income and the amount of your health insurance premiums. This premium assistance can be worth thousands of dollars per year.

Most people have the credit paid during the year to their health insurance provider, rather than waiting to claim it when they file their tax return. This works out fine if your estimate of your income for the year is accurate. But what happens if it turns out you underestimate your annual income? If you already benefited from premium assistance payments, you’ll have to pay them back to the IRS when you file your income taxes for the year. The amount you’ll have to pay back depends on your family income. If your income is below 400% of the federal poverty level, there is a cap on the amount you’ll have to pay back, even if you received more in assistance than the amount of the cap. However, at higher income levels, you’ll have to pay back the entire amount you received, which could be a lot. For example, about 3.3 million people who received premium assistance in 2015 had to repay part of the subsidy when they filed their 2015 taxes in 2016; the average amount that had to be repaid was $870. If you don’t pay back the amount due when you file your taxes, the IRS will deduct it from your tax refund, if any.

You calculate the amount you have to repay by completing IRS Form 8962, Premium Tax Credit.

The following chart shows how much individuals and families will be required to pay back for premium assistance payments received in 2019. These repayments must be made with the 2019 tax return, filed by April 15, 2020.

Income, based on federal poverty level

2019 Annual Household Income for an Individual

Individual Payback of Obamacare Premium Assistance

2019 Annual Household Income for a Family of Four

Family Payback of Obamacare Premium Assistance

Less than 200%

Under $24,280

Capped at $300

Under $50,200

Capped at $600

At or above 200% to 300%

$24,281 – $36,420

Capped at $775

$50,201 - $75,300

Capped at $1,550

At or above 300% to 400%

$36,421-$48,560

Capped at $1,300

$77,301 – $100,400

Capped at $2,600

Greater than 400%

$48,561 and higher

Full amount received

$100,401 and higher

Full amount received

Example: Ernest, a 55-year-old single self-employed writer who lives in San Francisco, obtained health coverage through the California health insurance exchange (covered.ca). He estimated that his 2019 income would be $35,000. Based on his age and income, he qualified for a premium assistance of $316 per month, or $3,792. However, it turned out that Ernest had a better year than he thought he would: He actually earned $48,000 in 2019. Based on this income, he was actually entitled to premium assistance of only $109 per month, or $1,308. He received $2,484 more in assistance than he should have. However, he only has to pay back $1,300 because this is the cap for people at his income level. Had his income been $48,561 or more, he would have to pay back the entire $3,792.

One way to avoid having to pay back all or part of your Affordable Care Act premium assistance is to report to your health exchange any changes in your income during the year. The exchange can adjust downward the amount of premium assistance you receive for the remainder of the year.

Another way to avoid having to repay all or part your premium assistance is to elect to have all or part of your premium assistance sent to you as a tax refund when you file your tax return, instead of paid in advance to your health insurer during the year. In other words, you pay the entire amount out of your own pocket during the year, and then you are reimbursed by the amount of premium assistance you qualify for.

For more details, see your health insurance exchange. Links to your state exchange are at healthcare.gov.

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