MANSFIELD, Ohio — The Affordable Care Act (ACA) created health insurance subsidies in the form of premium tax credits and cost-sharing reductions in order to help eligible individuals and families purchase health insurance through an Exchange.
The subsidies are designed to make coverage through an Exchange more affordable by reducing out-of-pocket premium costs. However, because subsidies are based on projected income, you may have received a subsidy overpayment and are wondering what happens next.
How Do Overpayments Occur?
Subsidies are calculated on your tax return using your household income and family size for the taxable year. To make income and subsidy determinations, the Exchange insurance application asked you to provide specific information about your income.
If your income at the time you signed up was not steady, or if it was expected to change, you were asked to give a projected income on the application. If you did not provide any financial information, the Exchange used your federal income tax return from the previous year to calculate your projected income.
Advance payments of the premium tax credit are made directly to the insurance company on your behalf. At the end of the year, the advance payments are reconciled against the amount of your family’s actual premium tax credit, as calculated on your federal income tax return.
If your actual income is more than your projected income, you likely have a subsidy overpayment.
How Are Overpayments Fixed?
At the end of each year, your subsidy amount will be recalculated using your household income as reported on your tax return, and any difference in the amounts must be corrected.
If your income has increased from the amount you reported to the exchange and you received a larger subsidy than you were entitled to, you may have to repay part of your subsidy.
This could result in either a smaller tax refund or a tax payment due. However, if, based on your household income, you are owed a greater premium tax credit than you received, you will receive the excess as an income tax refund.
If your income has increased from the amount that you reported to the exchange and you received a larger subsidy than you were entitled to, you may have to repay part of your subsidy.
If you do have to repay a portion of your subsidy, it is important to note that the ACA limits the amount of additional tax that may be imposed on taxpayers whose household incomes are less than 400 percent of the federal poverty level (FPL).