Tax credits are based on annual household income, not monthly income. If projected annual income changes you can adjust cost assistance to avoid repayment.
Quick Facts on Cost Assistance and Changes to Income
There are three important things to understand about cost assistance and changes to income:
- Marketplace cost assistance is based on projected annual household income, not monthly income.
- Cost assistance amounts can be adjusted on a monthly basis, simply let the Marketplace know you’ve changed your income projection for the year.
- You don’t have to take the full tax credit in advance, but if you do and your income is higher than projected you’ll end up owing back money up to the repayment limit.
TIP: The numbers below are the max amount you will have to repay, not the exact amount. In other words, repayment limits means you can’t pay higher than the amount listed for your family size and % of the Federal Poverty Level. Ex. if you made 201% as a family of two you can’t owe back more than $1,550. Amounts are subject to change each year, so always double check this year’s repayment limits.
NOTE: The following Advanced Tax Credit Repayment limit table from form 8692 is updated for 2018 coverage (accounted for on taxes filed in 2019).
|Income % of FPL||Filing Status:
|Less than 200% FPL||$300||$600|
|At least 200% FPL
but less than 300%
|At least 300% FPL
but less than 400%
|More than 400% FPL||Full Amount Received||Full Amount Received|
|If your year-end income exceeds 400% FPL, you will have to return the total amount of Advanced Premium Tax Credits you received. If you make too little to qualify for subsidies (less 100% FPL), then you should owe NOTHING (per the directions of form 8962 from which this table comes). That being said, if you know you are going to price out of cost assistance, make sure to update your Marketplace account. You might become eligible for a free or low-cost Medicaid plan if your state expanded Medicaid.|
TIP: See federal poverty level for more details. Make sure to refer to the current 8962 form for calculations each year at tax time (you can always use last year’s numbers for a general estimate).
It’s Important to Understand How Cost Assistance Works if You Are Uncertain of Income
In the case that your family loses an income source, or if you project to gain one later in the year, you should consider not to take tax credits up-front. Some people have been taking cost assistance upfront based off their income for the remainder of months in the year, or have been taking cost assistance at the start of the year (not realizing that the extra income later in the year will cause them to pay back tax credits).
This is especially important for those who lose their job and enroll in a Marketplace plan via special enrollment.
Here is what you need to know about coverage types and cost assistance:
- Medicaid is (typically in expansion states) based on monthly Modified Adjusted Gross Income (MAGI). If you have a high-paying job and then lose it, you can go on Medicaid without owing money back.
- Marketplace tax credits are based on annual household income (that is the head of household’s MAGI and other members Adjusted Gross Income or AGI). So if a family makes over 400% of the Federal Poverty Level (FPL) in month of January and then loses their source of income, they don’t qualify for tax credits (unless they take other deductions that brings them down below 400% throughout the year).
- There are a lot of deductions that bring down MAGI, this includes Health Savings Accounts. Use deductions to avoid repayment limits.
- If a family makes enough to qualify for cost assistance, but expect that income will increase over the year, or if they are uncertain of income, they should consider not taking the whole tax credit up-front. You can adjust advanced tax credits at anytime in between billing cycles.
- If you take too many tax credits up-front, you’ll have to pay them back up to the repayment limit on your year end taxes using form 8962.
- Marketplace cost sharing subsidies (only offered on Silver plans) are also based on projected income and can be adjusted between billing cycles. They only help those projecting to make between 100% – 250% FPL, but the big benefit is that you don’t have to pay them back. So those unsure of income can get a Silver plan and benefit from lower out-of-pocket costs and not take tax credits in advance. This will avoid the fear of owing money back.
If you lose your source of income, or are unsure of your income for next year when you enroll in a Marketplace plan consider picking a Silver marketplace plan and adjusting tax credits in-part or in-whole at the end of the year. This can give you access to cost assistance if needed, yet help you avoid owing back money if you don’t need it.
And remember, if you do owe back premium tax credits you took in advance, you are simply paying the full price for coverage in retrospect. You aren’t paying more, it’s more like the Marketplace is fronting you the money in case you don’t end up being able to afford full-priced coverage. This is legitimate and can be very helpful as long as you understand the consequences.