Do I Have to Repay the Premium Tax Credit if My Income is Too Low?

What happens if you took the Premium Tax Credit (Obamacare subsidy) based on your estimated income but your income ended up not being high enough to qualify? In some cases, you may be able to avoid repaying the credit.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

Who Qualifies for the Premium Tax Credit?

In general, your household income must be between 100% and 400% of the federal poverty line to receive the Obamacare subsidy.

If your income is too high, you receive no subsidy for your health insurance premiums. You can usually still buy a policy through the health insurance market at full price.

If your income is too low, you would generally not be eligible for a subsidy if you qualified for Medicaid or other government healthcare assistance.

How is Your Premium Tax Credit Calculated?

Your premium tax credit is officially calculated based on your current year’s tax return. For example, you won’t know your exact premium tax credit for 2022 until you file your 2022 tax return in April 2023.

To help you receive the credit when your health insurance payments are due each month, your premium tax credit is estimated when you purchase health insurance on healthcare.gov or your state’s exchange. This estimate is based on your estimate of your income for the upcoming year.

Your Estimate Usually Won’t Exactly Match Your Income

It’s pretty rare that your estimated income when you apply for health insurance matches your actual income when you reconcile your premium tax credit at the end of the year.

You might have worked a few extra or fewer hours, gotten a raise, had extra bank interest income, etc. A job loss, investment loss, business loss, major health expense, or other financial surprise may also greatly reduce your income.

What Happens if Your Estimated Income Doesn’t Match Your Actual Income?

Each year you receive an advance payment of the Premium Tax Credit, you’ll fill out an IRS Form 8962 to reconcile your credit at the end of the year. If your income is higher than your estimate, you may need to repay a portion of the credit. If your income is lower than your estimate, you may receive a greater credit.

However, if your income is less than 100% of the federal poverty line, you are not eligible for the premium tax credit. This means that you may need to repay the entire credit in full.

Repayment Exception Based on Your Estimated Income

If your actual income was less than 100% of the federal poverty line but your estimated income was above 100% of the FPL, there is an exception that may allow you to avoid repaying the premium tax credit. To do so you must:

  • Meet all other requirements for the premium tax credit other than income above 100% of FPL.
  • Did not intentionally or recklessly disregard facts when applying for health insurance through the marketplace.

In short, if you reasonably estimated a higher income, you likely won’t have to repay the premium tax credit. A reasonable estimate might include your previous year’s income, a projection based on average earnings for a new profession, or other supportable information that you used when applying for the premium tax credit.

The main idea of the rule is that if you suffered an unexpected hardship, you will not have to repay any advanced premium tax credit payments.

Repayment for Other Reasons

If you need to repay the premium tax credit for other reasons, such as not having qualifying income (even estimated), the repayment will be due on your tax return filing date. If you can’t afford to repay it in full by then, review your IRS payment options.

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