Do You Have to Pay Back Insurance Tax Credit When You File Your Taxes?

Millions of people receive advance premium tax credits (APTC) to help lower their marketplace insurance costs. When they enroll in marketplace coverage, they provide an estimate of their income; if this differs significantly from reality, some or all of their APTC may need to be returned when filing taxes.

1. Excess Subsidies

Most marketplace enrollees receive part of their premium tax credit (APTC) as an advance payment from the government directly to their health insurer, helping reduce costs associated with health plans they select. Any leftover amount can be claimed when filing their taxes via Form 8962; if their total APTC exceeds their final taxable income thresholds they may need to repay some or all of it as part of repayment requirements when filing taxes.

The Affordable Premium Tax Credit (APTC) is calculated based on an estimate of household income at the time they apply for marketplace coverage. Therefore, it’s crucial that people accurately estimate their income when applying so as not to receive too much or too little in the way of a subsidy subsidy.

People may also qualify for a cost-sharing reduction (CSR), designed to lower out-of-pocket expenses such as deductibles, copayments and coinsurance when using health care services. Household incomes between 100-250% of poverty qualify for this assistance.

depending on their actual taxable income at year end, individuals may need to repay some or all of the subsidized premium they were eligible for in Marketplace coverage – particularly if their estimated income at application was wrong and it transpired they have more income than expected.

As part of their assessment for any repayment obligations related to their subsidised Premium Tax Credit, one method for people can determine if they owe some or all of it is reviewing their Health Insurance Marketplace statement each year. This statement contains details regarding coverage during that year as well as advance payments made during that time. For this reason it’s crucial that people read and comprehend this document so they can reconcile any discrepancies with their tax return when filing it.

Another way for consumers to avoid having to repay too much of their APTC is to ensure they update their health insurance exchange account whenever their income or family size changes throughout the year, so the Affordable Care Act can recalculate their subsidized premium accordingly and prevent receiving too much or too little.

2. Excess Credits

The Affordable Care Act created the Premium Tax Credit (PTC), to make health insurance purchased via national or state Marketplaces more cost-effective. PTCs are available to qualifying individuals and families and can either be claimed as an advance credit or claimed back when filing their taxes. Their amounts depend on household income projections for the year; people can then utilize these credits to reduce monthly premium costs by using PTCs as advance credits or claimable refundable tax credits on their tax returns. However, if their actual income or family size falls outside their projections, or advance credits received must be returned in order to reconcile with federal payments that exceed final taxable income thresholds when filing taxes for the year. In such an instance, when they file their taxes they’ll need to repay any overpaid advance credits as required.

Enrollees who want to avoid paying back any excess APTC should report any changes in income via their Marketplace account or helpline, so the Marketplace can adjust their APTC accordingly and avoid discrepancies when filing taxes; or apply for different sized credits at year’s end if needed to prevent going over their maximum credit amounts.

People can lessen the likelihood that they’ll need to repay advance ACA premium tax credits they received by keeping their income below 400% of poverty level, as this is the threshold at which repayment rules begin applying – although repayment rules are somewhat flexible and thresholds change each enrollment year.

Al earned $125,000, well exceeding the minimum 400% FPL limit for his family size in 2021. Because he reported his income accurately and didn’t knowingly falsify information, no repayment rules applied in 2023 when repayment rules would become stricter, forcing Al to repay all advance ACA premium tax credits received if his income exceeded that level.

3. Overpayments

Misunderstandings about pricing and rates, errors in recurring payments or agreements not promptly implemented can all lead to overpayment. Overpayments typically go undetected until routine accounting processes such as account reconciliation compare current invoices against outstanding balances to identify any discrepancies in payment processes that have resulted in overpayments.

An acquaintance who runs a small business recently gave an example of an overpayment due to two mistakes. His invoices contain fees listed for each item as well as the total due at the bottom. But due to regularly “save-asing” old invoices without updating total due amounts due, overpayments occur when payments are processed resulting in overpayments due to overspending by mistake. Such scenarios can easily be avoided through automating invoice and payment processes using software systems.

Once an overpayment is detected, it’s essential to communicate with the customer to establish how best they would like the funds used; options could include applying it against an outstanding invoice, keeping it on their account for future payments or refunding it altogether.

Typically, an overpayment won’t be repaid if either a claimant voluntarily repays it or an SSA worker finds that recovery would violate “equity and good conscience,” because it would cause financial hardship; or they have other sources of income; they’re not in financial crisis; or can demonstrate repayment will not jeopardize future financial security – criteria widely interpreted by individual states that can differ significantly.

Maine residents enrolled during the COVID-19 pandemic may need to return a portion of their premium tax credit (APTC). If SSA determines their income fell below 400% FPL after enrolling, even if they received larger credits than were appropriate given family size and income at enrollment time. Pine Tree Legal Assistance may assist those needing help returning APTC due to changes in income status.

4. Repayments

As part of their tax filing requirements, individuals must reconcile advance credit payments made to their insurance company with actual premium tax credits they are eligible for. This process can be accomplished using the Health Insurance Marketplace statement (Form 1095-A). Each year, enrollees receive this document which must be used to calculate both advanced premium tax credit eligibility as well as actual premium tax credits at each income level – this step is necessary due to new rules applying ACA premium tax credits after 2024; such rules include dollar caps on any excess APTC paid and amount that must be returned depending on household income and tax filing status.

Individuals whose family income falls under 400% of FPL who received advance credits they are ineligible for must repay them in installments capped at certain income levels; repayment is calculated and reported on IRS Form 8962. Additionally, any changes to your family circumstances or income must be reported directly to their health exchange in order to adjust downward the remaining advance payments accordingly.