Receive an ACA Subsidy? Report Income Changes to Avoid Advance Premium Tax Credit Repayment

Deb Shields
August 3rd, 2021 July 6th, 2021 |
Read time: 9 minutes

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If you enrolled in an Affordable Care Act (ACA) plan and you receive advance premium tax credit (APTC) subsidies to help lower the cost of your premiums, you’re not alone. The Kaiser Family Foundation reports that 86% of Americans who enrolled in a 2020 ACA plan through the federal or state Marketplace received advance premium tax credits.[1]

If you’re receiving a subsidy, it’s a good idea to report any income increase or decrease, each and every time your income changes throughout the year.[2] Why?

Even a modest income change may affect the coverage and premium support you’re eligible to receive. Just ask the 2.6 million Americans who discovered they had to repay excess advance premium tax credit subsidies when they filed their income taxes in 2019 (the most recent year for which this data is available).[3]

Keep reading to learn how advance premium tax credits work, what to do if your income changes, and what impact underestimating or overestimating your earnings can have on your coverage and advance premium tax credits.

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How Advance Premium Tax Credits Work

To understand why you need to report income changes, it’s important to know generally how advance premium tax credits work.

First, only ACA plans purchased on the federal or state public Marketplace are eligible for premium tax credits. If you enroll in an ACA plan through the private marketplace or directly from an insurance company, you cannot apply for subsidies.[4]

Second, when you enroll in an ACA plan through the public Marketplace, the amount of premium tax credits you are eligible for is based on your expected income and household size for the year ahead—not the previous year.[5] When you file your taxes, you must claim the subsidy amount you receive using Form 8962.[6]

Subsidies are generally available only to individuals and families whose income is 100 to 400% of the Federal Poverty Level (FPL). Due to the March 2021 American Rescue Plan Act, through plan year 2022, premium tax credits have increased for low-income earners and become accessible to those at over 400% FPL for the first time.[7] Check out “$0 Premium Health Insurance – The 2021 COVID Relief Bill” to learn more.

When your income fluctuates, your premium tax credit subsidy amount is affected:

  • If your income increases – your subsidy could decrease or you could lose your subsidy eligibility altogether.
  • If your income decreases – your subsidy could increase or you could also become eligible for Medicaid.[8]

Note that other changes in life circumstances may also impact the premium tax credit you receive.[9] For example, changes in your family size due to marriage, divorce, birth, adoption, death, etc., moving to a new address, or gaining or losing access to employer- or government-sponsored healthcare plan. See complete details on the IRS’ Premium Tax Credit page.

An ACA subsidy calculator can help you determine how your income change may impact your premium tax credit amount.

Do You Qualify for an Affordable Care Act Subsidy?

Use the ACA Subsidy Calculator to find out if you can get financial help if you enroll in ACA-qualifying major medical insurance. Learn more about subsidies.

Where, When, and How Often to Report Income Changes

Life changes are inevitable and it can be hard to predict income changes. This can be especially true if you’re self-employed, work overtime occasionally, or even work a couple of part-time jobs.

But other events can result in a significant income change in your household as well, such as lump sum payments of social security benefits, taxable distributions from an individual retirement account, or debt forgiveness or cancellation.[10]

Regardless, no matter how frequently your monthly income changes, you are required to immediately report it to the public Marketplace from which you purchased coverage and applied for premium tax credit subsidies.

You have three options for reporting changes:[11]

  • Online
  • Over the phone
  • In person

You may not report an income change through the mail.

Visit HealthCare.gov to learn how to report changes online in states that use the federal exchange portal. Find your state’s exchange website.

Each time you report an income change, your advance premium tax credit will be adjusted accordingly. You may then find that your next health insurance premium is higher or lower than the previous payment amount.

If you fail to report changes, you may learn when it’s time to file your taxes that you:

  • Received a larger premium tax credit subsidy than you were eligible for. You may be required to repay some or all of the excess subsidy you received, which could result in a larger tax balance or a smaller refund. There may be a limit on how much you have to repay (see below for more details).
  • Received a smaller premium tax credit subsidy than you were eligible for. That means you may have missed out on monthly premium savings, which could either lower your tax obligation or result in a tax refund from the IRS.[12]

Limits on Subsidy Repayment

For tax years other than 2020, if your actual income was greater than your estimated income, you are responsible for repaying part or a portion of the advance premium tax credit you qualified for.[13] If you’ve taken less advance premium tax credit than you actually qualify for, you’ll see the difference as a refund on your federal tax returns.[14]

The amount you are responsible to pay for excess advance premium credit payments may be limited if your household income is less than 400% of the federal poverty level (FPL).[15] If your household income is 400% or more of the FPL, you are responsible for repaying all of your excess advance premium tax credit payments for tax years other than 2020.[16]

Excess Advance Premium Tax Credits Suspended for 2020
The one exception to the excess advance premium tax credit (APTC) repayment requirement was for the 2020 tax year, which extended a one-year repayment “forgiveness” as part of the 2021 COVID Relief Bill.[17]

For more information and guidance on 2020 tax returns and APTCs see the IRS 2020 Premium Tax Credit Fact Sheet.

For more details about how your income changes may affect the advance premium tax credit subsidy you receive, contact the public Marketplace through which you enrolled in your ACA plan. And for specific tax questions, be sure to contact your tax advisor or the IRS help center.

Please note, the materials available at this website are for informational purposes only and not for the purpose of providing legal or tax advice. You should contact your attorney or tax professional to obtain advice with respect to any particular issue or problem.

Other Life Changes That Can Affect Premium Tax Credits

Have you moved to a new address? Welcomed a new child or experienced other changes to your household size? Have you lost job-based healthcare coverage or are no longer eligible for government-sponsored healthcare programs?

These and other life circumstances can change the amount of the APTC subsidy that you receive. Visit HealthCare.gov for more details about reporting life changes.

Can You Avoid Reporting Changes?

If you are already receiving advance premium tax credits, you must report changes through the remainder of the year. However, if your income varies often through the year and you prefer not to be responsible for frequently reporting income changes, you have two other options:[18]

  • Take only a portion of your premium tax credit in advance – You can choose to have some of the subsidy amount for which you are eligible paid in the form of an advance premium tax credit and receive the difference when you file your tax return.
  • Take it all later – You can choose to receive any premium tax credit amount for which you are eligible when you file your tax return.

Keep in mind that without the advance premium tax credit, your monthly premium rate will likely increase.

What If Your Income Changes and You Can No Longer Afford an ACA Plan?

Certain life changes, such as temporarily experiencing unemployment, may make it more challenging to pay your monthly premiums. Let’s take a look at how your coverage may be affected with significant decreases or increases to your income.

Medicaid and CHIP Eligibility

A loss in your income may result in you and your family qualifying for Medicaid or the Children’s Health Insurance Program (CHIP). Through these programs, low-income adults, children, the elderly and people with disabilities may access free or low-cost health insurance.

Unsure if you qualify for Medicaid? Use this Medicaid eligibility tool to learn more.

If you are eligible, you can apply for coverage under these programs at any time. Begin at Medicaid.gov or complete an application on the federal marketplace.

Short-Term Health Insurance

Should your income increase and you lose your ACA subsidy, you may find it difficult to pay the premiums for your ACA plan on your own.

Short-term health insurance could be a lower premium coverage option[19] if you find yourself without an ACA plan, need coverage for a limited period of time, and are able to qualify. Short- term health insurance is designed to cover unexpected medical expenses in case you become sick or injured and is not a replacement for ACA-qualifying major medical insurance.

Depending on your state, you may be able to purchase this type of non-ACA-compliant plan for temporary coverage lasting between 30 to 364 days.

Because short-term medical is not guaranteed-issue (so you may be denied coverage based on your medical condition or health history), short-term health insurance does not qualify as ACA-compliant insurance. Short-term medical generally does not cover pre-existing conditions, nor provide the essential health benefits required of ACA-compliant plans.

However, with short-term health insurance, you may be able to:

  • Choose how long to keep your policy, for as little as 30 days, based on your coverage needs
  • Select a policy start date, usually within 24 hours of being approved for coverage
  • Apply year-round in most states in allow them – short-term policies are not subject to the ACA open enrollment period
  • Pick the level of benefits that meet your needs (pay higher premiums for additional benefits)
  • Visit any provider you wish to see, as this coverage typically does not have network restrictions

As a non-ACA compliant, limited-benefit plan, short-term medical may have lower premiums than ACA plans.[20] Your specific premium will be based on a number of factors, including the benefits you select.

Getting a quote and learning about your options takes just a few minutes.

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Summary + Next Steps

If you receive advance premium tax credits to help lower your monthly ACA premium, you are required to report income changes every time they occur. Otherwise, you may find yourself having to pay back excess subsidy payments when you file your taxes the following year, or even discover that you could have received more subsidies or been eligible to receive government-sponsored coverage, such as Medicaid.

By waiting to receive your premium tax credits until you file taxes, any amount you were eligible to receive will simply be calculated into your tax obligation, and may help lower your tax amount due, or even result in you receiving a refund. But that also would mean your monthly premium payments could be significantly higher. Consider your personal financial circumstances to decide what is best for your situation.

Forgoing coverage altogether can be financially risky. If your income increases and you find you are no longer eligible for premium tax credit subsidies, consider non-qualifying short-term health insurance for temporary coverage until you can find a more affordable ACA-qualifying option.

Learn more about short-term medical insurance, or call 888-855-6837 to speak to a licensed agent that can help you understand your options.

Please note, the materials available at this website are for informational purposes only and not for the purpose of providing legal or tax advice. You should contact your attorney or tax professional to obtain advice with respect to any particular issue or problem.

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Originally Published On March 8th, 2016
Independence American Insurance Company and/or Madison National Life Insurance Company, Inc. may underwrite the products referenced on this website. Legal Disclaimers.

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